Crisis accelerates big shift in emerging markets index

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While China has been a standout country for the adoption of online consumer purchases for several years, the trend has accelerated during COVID-19 and other emerging markets, such as Brazil, have taken a “huge leap forward”, according to Martin Currie. Much of the new ground will remain after normalisation.

In an online discussion between Kim Catechis, Martin Currie’s head of investment strategy, and Andrew Mathewson, an emerging markets portfolio manager who has specific responsibility for consumer and health care sectors, said the story of emerging markets today was about the young consumer who is an “online native”.

“They are also saving and investing online,” Mathewson said. “Historically in emerging markets the index was dominated by resource companies and there is still this lingering perception that investing in emerging markets is about these cyclical businesses. But, today, the index is actually dominated by consumer companies, financial companies and technology companies. They are global leaders in intellectual property benefitting from strong secular trends and this crisis has only served to accelerate those trends and cement the shift in the index.”

Using Brazil, the second-most COVID-impacted country after the US, as an example, Mathewson said that about 70 per cent of consumers now had smart phones. Historically, the shift to online in Brazil had been quite slow. “Online retail has skyrocketed in the last few months as consumers have signed up to these platforms and experienced online shopping for the first time. Again, we think that those habits that have been formed will prove to be lasting. It’s huge leap forward.”

While the fund managers did not discuss Australia specifically, clearly China currently represents an issue for companies which do business directly with our largest trading partner. This is not so much a trade war but rather a political spat, recently exacerbated by Australia’s offer to Hong Kong residents and businesses to make relocation easier. In such an environment, portfolio investments in China, either directly or indirectly, through non-Chinese companies, seem a good way to continue to benefit from China’s growth.

Kimon Kouryialas, Martin Currie’s Melbourne-based co-head of global distribution, said: “Interest in direct investment into China continues within Australia’s superannuation funds, although discussions are focused on investment capabilities that centre around active, on the ground A-share capabilities.”

Before the COVID crisis, Mathewson said, China’s online grocery shopping growth was only in line with the trend in markets in Europe, for example, which was single-digit growth. “But what we’ve seen is a huge benefit to that industry in recent months,” he said. “Similarly, is the growth in home dining. We’ve seen high-end restaurants sign up to this [as they have in western countries,” he said.

– G.B.

Note: Martin Currie is a sponsor of Investor Strategy News. Any opinions expressed, though, may be those of the author and not necessarily those of Martin Currie.

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