Monday 7th February 2022
Emerging market allocations poised for long-term success
Martin Currie has released its Global Emerging Markets 2022 Outlook research note, which gives investors enough reasons to be invested in 2022 and what to expect for the year ahead.
If 2021 was anything to go by, the market learnt that Covid-19 is here to stay with an ongoing health impact. This would ensure a knock-on effect that would disrupt economic activity on a global scale. But emerging market countries have done surprisingly well given that their respective governments mostly refrained from providing excessive fiscal support and monetary stimulus.
Alastair Reynolds, portfolio manager, global emerging markets, says: “Vaccination programs remain a crucial weapon in the fight against Covid-19. The emerging nations have made major inroads on vaccination during 2021 which should pave the way for a return to normal levels of activity.”
Reynolds remains optimistic on market conditions going into 2022, saying the market has already factored-in rising interest rates, higher inflation and resurgent Covid-19 infection rates. He says, “the good news for bottom-up investors is that these factors appear to have been priced-in already. The challenge to us is to identify those companies which are positioned to lead the pack in the year ahead; investing in quality and growth will pay off in the long run, and 2022 is no different.”
One of the major themes that will play out is ESG. There has been an urgent push for companies to follow ESG principles, and Martin Currie believes that matters in emerging markets, because it directly translates into alpha. Reynolds says, “This is clearly visible in the outperformance of the region’s ESG leaders compared to the broader market over the last decade.” Given the macro environment, he expects ESG credentials to be a convincing factor of company performance in the year ahead.
Other thematics include financial technology and the “green energy” transition. Almost 20 per cent of the portfolio is tilted towards banks, insurance and financial technology/digital banks. The firm also believes it’s an exciting time for fintech, and there will be some “truly innovative” new emerging market firms that will embrace this megatrend rather than go against it.
In summary, Reynolds is confident this year will present an opportunity to increase or gain exposure to key themes in emerging markets. He expects “high-quality, sustainable growth companies” to “weather any short-term market pessimism, leading to long-term success in 2022 and beyond.”
Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.
