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The emerging markets growth story is still very much in tact and the market needs to get over its fixation with noise and short-termism. These were the key takeaways from the presentation of Bryan Collings, Manager of the Ignis International HEXAM Global Emerging Markets Fund.
He upheld one particular message loud and clear: regardless of the latest global geopolitical developments, inflationary pressures, and monetary tightening, the emerging market consumer is “alive and well.” What’s more, the huge populations of China, Indonesia, Mexico, Brazil and the likes are quickly urbanising. With this trend comes demand for property, infrastructure and protection. This observation prompts Collings to say: “Don’t be limited to retail, you need to borrow, build, insure.” It’s all about taking advantage of emerging markets populations’ wealth accumulation and urbanisation, Collings added.
Against this background, Collings observes that emerging markets’ debt ratios are actually relatively low. These economies are in fact experiencing a rapid influx of cash, he said, cash which is then reinvested or paid back to the state in the form of taxes. In any case, “the cash is going back to its own markets,” Collings notes.
That said, the retail opportunities in emerging markets are still quite strong as long as investors are able to insulate themselves from market noise There has always been a certain level of negativity and doubt when considering emerging markets investing, Collings observes, but the basic data suggest that emerging markets will outperform and “beat Warren Buffet again.”
Collings gave a number of examples of how urbanisation creates the need and opportunity for investment: heavily populated countries in South America and Asia, with the notable excepting of India, are all implementing housing plans, he adds. The need to build up infrastructure in these geographies is also apparent. Emerging economies have therefore both the motive and the money to develop their road systems. Roosevelt’s New Deal is nothing compared to the sheer scale with which GEMs are now building up, said Collings.
This growth has been propelling commodity markets and is not poised to stop, in Collings opinion. “You will not get single digit growth in commodities while emerging markets are growing,” he said. Commodities find themselves in a “super cycle” because GEMs themselves are in a “super cycle”, he added. Furthermore, Collings believes it is very unlikely that emerging market growth will lose momentum, unless there is a major crisis that hits all the developing economies. And the only economies able to trigger such a crisis are developed markets, he concludes.
Collings did not, however, forget to mention that there are long term risks to the GEM growth story. In the case of China, in particular, ageing population and state pension obligations are a “time bomb” people often avoid, he noted. In the shorter term, the Chinese insurance market is facing problematic regulation. But when the legal environment becomes more permitting, the opportunities will be enormous, said Collings, as he pointed out that China Life alone recently had a sales force the size of the British Army.
“Short terminism” in investment philosophies is thus the biggest current hindrance to finding opportunities in emerging markets, in Collings’ view. “You just need to get exposure and sit on it and ignore the cycle,” he said.
To a question from the audience on what level of exposure to GEMs a 30-year-old investor looking to save for retirement should have, Collings answered bullishly: “100%”. "If I was 30 I'd put it all in emerging markets, hey, if I was 40 I'd still put it all in emerging markets," he added. "I just don't see why you'd do anything else if you've got a long investing horizon," he concluded.
