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10 trends shaping the future of emerging markets

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What 35+ years of emerging markets experience teaches us about their future 

 

Emerging markets are an exciting place to be, and have become more developed, more mature, and often less volatile and homogeneous than in previous years.

At Capital Group, our 35+ years of experience investing in EM teaches us that the best way to approach this opportunity is through on-the-ground research and by taking a global view.

10 trends shaping the future of EM

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What sets us apart

There from the beginning

Scale and scope of our research

Distinctive investment process

First emerging market fund

US$75bn AUM in EM-focused strategies

All our analysts invest in their best ideas

There from the beginning

A pioneer in EM

We created the world’s first emerging market equity fund.

More than 35 years ago, a division of The World Bank asked us to develop the first EM equity fund. A key reason that Capital Group was chosen to manage the fund was its willingness to dedicate a research team to EM.

“The initial opportunity set was very limited, and it was very novel. I took my first research trip to Argentina, Brazil, and Chile in June of '86. I was the first analyst they had ever received. They said, "Well, welcome; why are you here; and what would you like to talk about?”

 

Victor Kohn,
Portfolio Manager

We put the ‘CI’ in MSCI

In the 1960s, the research efforts of a group of our portfolio managers led to the creation of what later became the Morgan Stanley Capital International indices (MSCI). Capital Group expanded on that effort in 1987 when it helped create the MSCI Emerging Markets Index, the first index focused on developing countries.*

*MSCI indices are now maintained by MSCI, Inc.

Scale and Scope of our Research

Deep research capabilities to unearth opportunities

Our focus is and always has been on fundamental research. In addition to desk research and traditional field research, our analysts are encouraged to venture ‘off the beaten path’. Engaging directly with the companies we invest in has enabled us to make intelligent, well-informed, ‘bottom-up’ investment decisions.

LHS: Former Investment Professionals Peter Armitage (left), Tom Sorensen (center) and Bob Kirby (right) explore investment opportunities in Amman, Jordan in 1987.

RHS: Portfolio manager Rob Lovelace is briefed on crop conditions in Malaysia, 1989.

Boots on the ground

Few asset managers can match the scale and scope of our proprietary research effort. This allows us to seek out the best investment opportunities for our clients. In 2020 we conducted over 20,000 meetings in 29 countries, 12 of them being emerging markets countries3.

Distinctive Investment Process

A key difference in our process is that our investment analysts not only provide investment ideas to portfolio managers, but are also able to act on the courage of their convictions and invest.

Bringing together the different perspectives of equity and bond analysts

Our investment process brings together the perspectives of equity and bond analysts. Their different perspectives and being able to see ‘both sides of the balance sheet’ contribute to enhanced decision-making. This process has the potential to deliver compelling investment ideas and gives portfolio managers a broader and deeper understanding of risk.

Three routes into emerging markets

Our EM strategies can complement existing EM equity and debt strategies, addressing different trade-offs between return and volatility. In particular, we recognise that a diverse universe requires a flexible approach to accessing opportunities and managing risk.

Risks may be associated with investing in emerging markets, which are volatile and may suffer from liquidity problems.

All data as at 31 December 2021 and attributed to Capital Group, unless otherwise stated.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates.

Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organisation; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups. 

1.       Refers to the US-domiciled open-end interval fund generally offered to institutional investors and other qualified purchasers in the US by Capital Group Investment Management Pte. Ltd. The American Funds are not registered for sale outside of the United States.

2.       Not all Capital Group products launched since the 1980s have been included in this timeline.

3.      Due to travel restrictions related to Covid-19, fewer countries were visited during 2020 than would be typical.