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29 August 2024
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Will Farrell
Our engagement focused on human rights and living wages within Sainsbury's supply chain.
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13 September 2024
| Active ESG
Stephen Auth, CFA
Lewis Grant
James Cook
Equities regained ground this week amid volatile trading in September.
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Actively invested in
emergingmarkets
Asia
Solutions across the spectrum
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A range of long-term tailwinds support emerging markets (EMs). They include a demographic advantage over the West, manufacturing capabilities, resource advantages, digitisation and a focus on developing infrastructure.
With our broad EM offering, covering emerging and frontier markets, large and small caps, fixed income and Asia specialisation, Federated Hermes has the experience, the know-how and the connections to meet an array of investor requirements and help them capitalise on this vast and growing trend.
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Four key attributes of EMs
The attraction of Asia
Why Federated Hermes for EM?
Emerging markets: Why now?
EMs account for 82% of the world’s population but currently only 24% of global market capitalisation.
World population:
- EM
- DM
World growth:
- EM
- DM
World economy:
- EM
- DM
World cap:
- EM
- DM
- Developed markets
- Emerging markets
Source: Bloomberg, latest available as of January 2024. Growth figures are between 2017 and 2023 and are illustrative of countries within emerging and developed markets.
Emerging Markets:
What'sdrivingchange?
Decarbonisation, tech innovation, demographic shifts. We take a look at the long-term megatrends reshaping the investment landscape in some of the world’s fastest-growing economies.
AN EMERGING OPPORTUNITY:
Four key attributes of emerging markets
The growth story:
- The growth differential between emerging and developed markets is likely to widen in favour of emerging countries on the back of positive demographics, limited supply side constraints, industrialisation, resource advantage, on-going reforms and infrastructure development.
The commodities story:
- Historically, EMs’ reserves of commodities mean they tend to outperform in periods of above-trend inflation. This is particularly relevant with current geopolitical pressures driving demand for energy-related commodities and green metals.
The inflation question:
- Many EM governments have addressed the challenge of inflation more effectively than their developed market peers. Many emerging countries have become more resilient against its effects, meaning more fiscal room to boost their economies.
Valuations:
- EMs continue to trade at a valuation discount considerably larger than the historical average. In emerging market debt, vulnerability to a strong dollar is being addressed by a transition from dollar-denominated to local currency debt.
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A demographic advantage
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EMs tend to have a younger population, with a high percentage of people of working age and a lower percentage of non-productive older citizens. This can result in rising levels of per capita income.
Demographic shifts favour emerging markets
Source : World Data Lab projections.
- Under 15 years
- Over 65 years
- Africa
- Latin America, Caribbean
- World
- Asia
- Oceania
- North America
- Europe
An expanding middle class
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Income growth, urbanisation and demographic changes create a growing pool of middle-class consumers. This drives increased revenue for companies through premiumisation.
A powerful growth engine
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Emerging markets are forecast to consistently outperform developed markets for growth in the coming years. By 2030, Asian countries are forecast to be the first, third and fourth positions globally in terms of GDP (China, India, Japan).
Emerging market GDP will account for almost half of top 15 countries by 2030
Emerging Markets GDP Progression
Top 15 in 2020
- 2020
- US
- China
- Japan
- Germany
- India
- UK
- France
- Italy
- Canada
- Korea
- Russia
- Brazil
- Australia
- Spain
- Indonesia
Top 15 in 2030 (forecast)
- 2030
- China
- US
- India
- Japan
- Germany
- UK
- France
- Brazil
- Italy
- Korea
- Mexico
- Russia
- Canada
- Indonesia
- Australia
Emerging market GDP is forecast to amount to almost 50% of the top 15 countries in the world by 2030
Source: IMF, HSBC, Statista, Federated Hermes
Electrification
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The move away from fossil fuels will be a strong economic driver. EMs are less weighed down by legacy grids and so are better placed to roll out smart grids, enabling two-way power flow and multi-stakeholder interactions.
Infrastructure
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Developing countries have fewer legacy issues than DMs when building new infrastructure. This confers an advantage when building smart cities; 5G networks, and transport networks.
5G base stations in the US and China (2019 to 2021)
Source: S&P Global Market Intelligence as at February 2022
- China
- United States
- 2019
- 2020
- 2021
Resources
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Many of the key resources needed for future growth and the energy transition are located in emerging markets.
The attraction of Asia
Huge opportunities lie in emerging markets’ key geographic region
Asia enjoys a range of structural advantages that potentially make the region more resilient than developed economies in the face of growing cyclical and structural economic headwinds.
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Our EM solutions
Whether you’re interested in broad exposure to emerging markets or want to focus on a particular aspect of the emerging market opportunity, our product range provides the flexibility to invest in EM with a range of preferences in mind.
GLOBAL EMERGING MARKETS
Global Emerging Markets Equity
Delivering holistic long-term returns through investing in structural thematic trends
Global Emerging Markets SMID Equity
Applying the GEMs philosophy to the small- and mid-cap universe
Global Emerging Markets ex-China Equity
Applying the GEMs philosophy to EM opportunities beyond China
ASIA EX-JAPAN
Asia ex-Japan Equity
Employing a contrarian investment style to drive long-term returns
China Equity
Applying a contrarian investment style to China equities
EMERGING MARKETS DEBT
Emerging Markets Debt
Delivering alpha through our expertise in a misunderstood market
Why Federated Hermes?
Federated Hermes has been actively investing in emerging markets for more than two decades.
Our understanding of EMs is reflected in our approach to managing risk, capturing value and engaging effectively with companies to maximise the potential long-term returns for our clients.
Managing risk
- While emerging markets offer a high degree of opportunity, we recognise that this is often accompanied by a higher level of associated risk. When making investment decisions, we carefully factor in market-specific issues such as geopolitical tensions, political stability, and regulatory structures, as well as more temporary concerns such as China’s Covid policy or the issues in its property market.
Capturing value
- Emerging market assets tend to trade at a discount, but even so not everything in EM is cheap, or even good value. We conduct thorough bottom-up fundamental analysis of potential assets before deciding whether they are of interest for our portfolios. At the same time, we determine a target price at which the asset represents a good investment.
Engaging effectively
- We engage widely across emerging markets, addressing a range of environmental, social, and governance (ESG) issues. We believe this level of active engagement reduces risk and improves the potential for stronger returns from the companies we invest in.
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9 September 2024
| Active ESG
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In this report, we discuss noteworthy developments in emerging markets this year.
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15 July 2024
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We delve into macroeconomic trends shaping emerging markets.
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Whitepaper
28 June 2024
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What’s behind this phenomenon? Our Asia ex-Japan team investigate…
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24 June 2024
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What’s front of mind for investors in Asia right now?
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