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Why Emerging Markets?
Home > Investment Approach >Why Emerging Markets?

Emerging market valuations are more attractive vs. the U.S.

  • For 2018, estimated P/Es of 12.2x for MSCI Emerging Markets and 11.5x for MSCI Frontier Markets vs. 16.9x for the S&P 500

Favorable demographics

  • In many emerging markets, a high percentage of the population is either entering or already in their working years.
  • This phenomenon creates a growing and better educated middle class and results in a higher level of domestic spending as millions of people become part of the consumer society.
  • By 2030, the global middle class is expected to grow from 3 billion to 5.4 billion people, of which 3.5 billion will come from Asia.
  • Of the increase in middle-class spending between 2015 and 2030, 84% is expected to come from Asia ex-Japan, including 30% from India and 35% from China.

Urbanization

  • Urbanization is both a growth driver and productivity enhancer.  The move from farm to city leads to growth in income per capita - incomes go up (relative to farm income) and number of people per household goes down (due to higher cost of housing and education in cities).

Technology transfer and democratization

  • Emerging markets are adopting new technologies such as smart phones that significantly enhance productivity for a large portion of the population – a powerful growth driver.

Increase in credit penetration

  • Credit penetration remains low in many emerging markets but is starting to improve.
  • Mortgage penetration is still low but growing rapidly in several markets, making housing a compelling investment theme in countries like India.

Infrastructure build out

  • Improved infrastructure facilitates the flow of goods and services and significantly enhances productivity.

Portfolio diversification

  • Emerging and frontier markets have low correlations vis-à-vis global indices, and even lower correlations inter-country.
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