The Evolution of Emerging Markets Investing - Franklin ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
The Evolution of Emerging Markets Investing
Emerging Markets Are Evolving
Rapid economic growth in Emerging Markets since the 1980s has transformed what was once a niche
asset class into a critically important one representing the economic forces poised to shape global growth
in the 21st century.
EMERGING MARKETS NOW DOMINATE GLOBAL GROWTH
Share of Global GDP (Gross Domestic Product) Growth1
1982–1987 1992–1997 2002–2007 2012–2018
30% 43% 35%
40%
70% 60% 57% 65%
Emerging Markets Developed Markets
THEY ENJOY ROBUST FISCAL HEALTH AND OFFER EXCEPTIONAL POTENTIAL
Public Debt % of GDP 1
GDP Per Capita Growth1
2000 – 2018 2008–2013
120
29%
104.34%
100
Developed
Markets
80
60
40
8%
28.71%
20 Emerging
Markets
0
2000 2003 2006 2009 2012 2015 2018 Emerging Markets Developed Markets
Over 80% of the global population lives outside the developed world. Per capita GDP growth of the
emerging world is far higher than the developed world. The impact of billions of consumers generating
strong growth could radically reshape the global economy in coming decades.
1. Source: IMF World Economic Outlook Database, October 2013. © 2013. By International Monetary Fund. All Rights Reserved.
1 States of Emergence www.franklintempleton.luUrban Consumers Will Drive Growth
Rising incomes in growing cities are already creating abundant new opportunities for emerging market
investors. Favorable demographics and burgeoning urban consumer classes are spurring demand which
is creating lucrative markets for many consumer facing companies.
MASS URBANIZATION IS TRANSFORMING EMERGING MARKETS
Urban Population Growth2 (in Billions)
5
4.64 World
4
3.60 Emerging Countries
3
2
1 1.04 Developed Countries
0
1950 1965 1980 1995 2010 2025
Expanding Urban EconomiEs Are Creating Waves of New Consumers
World Population3 (in Billions) World Consumption3 ($ Trillions)
7.9
64
6.8
The percentage
4.2
5.2 2.4 30 of the world’s
1.2 38 consumers that live
3.7
0.9
12 in Emerging Markets
2.5
0.3 4.0 4.4 is rapidly growing.
3.7 34
2.8 26
2.2
1950 1970 1990 2010 2025** 2010 2025***
Below Consuming Class* Consuming Class* Developed Markets Emerging Markets
*Consuming class: daily disposable income is ≥ $10; below consuming class, < $10; incomes adjusted for purchasing-power parity.
**Projected.
***Estimate based on 2010 private-consumption share of GDP per country and GDP estimates for 2010 and 2025; assumes private consumption’s share of GDP will remain constant.
2. Source: United Nations, Department of Economic and Social Affairs, Population Division (2013). World Population Prospects: The 2012 Revision, CD-ROM Edition as of May 2013.
3. McKinsey Global Institute analysis, McKinsey Quarterly: Winning the $30 Trillion Decathlon: Going for Gold in Emerging Markets (August 2012). Sources: Maddison, A. (2003). The World Economy,
A Millennial Perspective, Paris: OECD; Website: http://www.ggdc.net/maddison/maddison-project/home.htm; Homi Kharas, senior fellow at the Global Economy and Development program at the
Brookings Institution.
www.franklintempleton.lu States of Emergence 2Redefining Opportunity: States of Emergence
In 1980 five countries were available to investors as Emerging Markets. Today there are more than sixty.
While many investors still see Emerging Markets as a single asset class, these countries now vary greatly in
their development, political risk and the types of companies that drive their economies. In short, they each
have a unique “state of emergence.”
As Emerging Markets evolve, so does the complexity of finding the best investment ideas. That’s why
we analyze each opportunity uniquely within the context of its relevant market. Government policy,
economic infrastructure and personal income levels of a given market can all shape the fortunes of specific
companies. How that investment compares to others in the region or across the globe is equally important.
Local, on the ground insight is critical for identifying opportunities and challenges in these increasingly
diverse economies. A global perspective provides a broader view of a company’s prospects for the future.
Two Emerging Countries, Two Different Outlooks
NIGERIA AND THAILAND SHARE STRONG GROWTH, BUT LITTLE ELSE
NIGERIA4: Huge Potential, Significant Challenges
With 174 million people and large oil reserves, Nigeria
generated exceptional average annual GDP gains of 8.9%
between 2001–20105 despite frequent political instability. But an
overdependence on the oil sector, which provides about 80% of
budgetary revenues kept the rest of the economy from flourishing.
Nigeria’s government has recently begun long overdue economic reforms
to spur more diversified growth. Low per capita GDP of US$2,800
(2012 est.) highlights both the challenges and potential for Africa’s
second largest economy.
THAILAND4: Resilient and Resurgent
Diversified agricultural and industrial exports have driven
Thailand’s steady growth, but the economy has also
demonstrated incredible resilience. The global economic crisis slashed
exports and the economy shrank 2.3% in 2009 but quickly rebounded
and expanded 7.8% in 2010. Then in late 2011 the manufacturing
sector was devastated by massive floods. Industry recovered from the
second quarter of 2012 onward with GDP growth of 5.5% in 2012.
Per capita GDP of US$10,700 (2012 est.) continues to rise, paving the
way for increased consumer led growth.
4. Source: CIA World Factbook as of June 2013.
5. Source: World Bank: World Development Indicators Database: International Comparison Program Database.
3 States of Emergence www.franklintempleton.luEmerging Sectors Can Seem Similar, but Vary Widely
Our research on sectors reveals new opportunities and provide important insights for security selection
in specific markets. For example, a sector may be expanding rapidly in one region while its relative profile
is much less in another. So the fact that the types of investment opportunities within the same sector can
vary widely between regions and even countries must be factored into portfolio construction.
Sector Weights Across EM Regions6
45
36
27
Asia
18
Latin America
Europe
9
Arabian Markets
0 Africa
Consumer Staples Energy Information Technology Materials
in focus: TWO KEY SECTORS NOW
ENERGY
Energy demand in Emerging Markets, which remains far Energy Consumption7 (in Quadrillion Btu)
below developed markets, is expected to grow by 90% from 800
2010–2040 as mass urbanization and strong economic
600
growth drive up electricity consumption. While this trend is
expected to apply across all Emerging Markets we believe 400
some of the best opportunities are select oil & gas companies
200
and coal producers across Asia, particularly in China, which
should benefit from ongoing reforms affecting subsidies, 0
regulation and the introduction of market pricing. 1990 2000 2010 2020 2030 2040
n OECD n Non-OECD
CONSUMER GOODS
Personal consumption in Emerging Markets is increasing Projected Middle Class Spending8 (%)
significantly as the middle class expands. But some subsectors 100
are particularly strong; the auto sector is booming and has huge 80
potential in India and China. Supermarkets are also flourishing 60
in many Emerging Markets. Within Asia specifically the growing 40
number of wealthy consumers is creating substantial demand 20
for premium brands. As a result, we believe compelling 0
investment opportunities exist in certain luxury product 2012 2020 2030
manufacturers who are based in developed markets but now n Asia n North America n Europe
earn more than half their profits from Emerging Markets. n Latin America and the Caribbean n Africa n Oceania
6. Sector Weights are based on the MSCI EM Regional Indexes: EM Asia, EM Latin America, EM Europe and MSCI Arabian Markets and MSCI Frontier Markets, as of 31.12.2013.
© 2013 FactSet, MSCI. For more details please refer to “Additional Information” section on the last page of this brochure.
7. Source: U.S. Energy Information Administration, International Energy Outlook 2012. Btu stands for British thermal unit, 1 Btu equals 0.2931 W-h (watt hours).
8. Sources: Middle Class Data source: Homi Kharas, Brookings Institution, 2012. Region definitions from the United Nations Statistics Division.
www.franklintempleton.lu States of Emergence 4Local Expertise Unveils Hidden Opportunities in
the Securities Market
Many excellent companies are not included in regional indices, so having investment teams conducting
company visits in the local language can uncover valuable opportunities. As Emerging Markets evolve in scale
and complexity, this first-hand knowledge of local enterprises, their management, and the markets in which
they operate can also be critically important for knowing when to sell an investment.
AT THE COMPANY LEVEL: A CLOSER LOOK
BRAZIL: Estacio Participacoes SA
• One of Brazil’s largest private-sector Indexed Total Return Since Purchase9 (Local)
post-secondary education groups 25 January 2011–30 September 2013
• The group has 334,000 students 250 244.34
Estacio
enrolled in distance learning and Participacoes SA
200
campus programs Brazil –
Total Return
150
• Brazil has 82 million people aged
24 or younger 100 94.16
• Well positioned to benefit from an MSCI Brazil –
50 Total Return
expanding middle class
• Not in the MSCI Brazil Index 0
01/11 08/11 03/12 10/12 05/13 12/13
INDIA: Induslnd Bank Ltd.
• The bank operates a network of Indexed Total Return Since Purchase9 (Local)
530 branches and 1,003 ATMs 14 August 2009–30 September 2013
• Quarterly net profit rose 30% as of 600
31 December 2013 from a year earlier 500
454.51
• Total deposits increased by 11% as of 400 Induslnd
31 December 2013 from a year earlier Bank Ltd. –
Total Return
300
• Listed on the National Stock
200
Exchange of India and the Bombay
142.06
Stock Exchange but not part of the 100 MSCI India –
Total Return
MSCI India Index 0
08/09 09/10 10/11 11/12 12/13
9. Source: FactSet, MSCI. For more details please refer to “Additional Information” section on the last page of this brochure.
5 States of Emergence www.franklintempleton.luEmerging Markets Are Not Homogeneous.
Neither Are Our Emerging Markets Capabilities
• Our team of professionals represents 26 nationalities and speaks 27 different languages and
dialects. We are global investors with local perspectives.
• We believe active, informed portfolio management is the best way for investors to capture
opportunities across this increasingly diverse set of nations as they develop through different states
of emergence.
“Our emerging markets team isn’t too keen on following crowds. Part and parcel of Templeton’s
contrarian approach is traveling to places others aren’t, and thinking about the long-term
potential in specific industries and companies that may not be on others’ radar screens.”
—D r. Mark Mobius, Executive Chairman of Templeton Emerging Markets Group
Actively Pursuing Opportunities on the Ground,
Across the Globe
19 Offices IN EMERGING MARKETS 195 Investment Professionals 26 + Nationalities 27 + Languages spoken
n Frankfurt n Bucharest
n Bangkok
n Leeds n Istanbul
n Hanoi
n New York n London n Moscow
n Calgary nn Ho Chi Minh City
n Toronto n Vienna n Warsaw
nn San Mateo nn Hong Kong
nn Kuala Lumpur
n Chennai nn Seoul
nn Mexico City nn Dubai nn Shanghai
nn Mumbai nnn Singapore
n Buenos Aires
n Rio de Janeiro
n São Paulo
n Cape Town
n Melbourne
n Templeton Emerging Markets Group n Franklin Templeton Local Asset Management Group n Franklin Templeton Global Fixed Income Group
www.franklintempleton.lu States of Emergence 6Franklin Templeton International Services S.à r.l. 8A, rue Albert Borschette L-1246 Luxembourg www.franklintempleton.lu Important Legal Information This document is intended to be of general interest only and does not constitute legal or tax advice nor is it an offer for shares or invitation to apply for shares of any of the Franklin Templeton Luxembourg- domiciled SICAVs. Nothing in this document should be construed as investment advice. Franklin Templeton Investments have exercised professional care and diligence in the collection of information in this document. However, data from third party sources may have been used in its preparation and Franklin Templeton has not independently verified, validated or audited such data. Opinions expressed are the author’s at publication date and they are subject to change without prior notice. Any research and analysis contained in this document has been procured by Franklin Templeton Investments for its own purposes and is provided to you only incidentally. Franklin Templeton Investments shall not be liable to any user of this document or to any other person or entity for the inaccuracy of information or any errors or omissions in its contents, regardless of the cause of such inaccuracy, error or omission. Issued by Franklin Templeton International Services S.à r.l. – Supervised by the Commission de Surveillance du Secteur Financier – 8A, rue Albert Borschette, L-1246 Luxembourg – Tel: +352-46 66 67-1 – Fax: +352-46 66 76. Additional Information © 2013 FactSet Research Systems Inc. All Rights Reserved. The information contained herein: (1) is proprietary to FactSet Research Systems Inc. and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither FactSet Research Systems Inc. nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI. © 2014 Franklin Templeton Investments. All rights reserved. EMLU B 02/14
You can also read
