2020/21 Year in review: Emerging markets
By Amit Goel and Punam Sharma
Portfolio Managers, Fidelity Global Emerging Markets Fund
It has been an interesting year for emerging markets (EM) and for the portfolio. In May of this year we took over the responsibility for managing the Fund from Alex Duffy and although we were very sorry to see him go, we’re really excited by the opportunity.
The Fund’s investment philosophy remains unchanged and we continue to focus on identifying companies with quality attributes through a rigorous bottom-up stock picking approach. We’re also committed to expanding our sustainable investing credentials as we believe this will provide stronger outcomes for investors and we look forward to helping our clients build better financial futures in the coming years.
Many emerging economies have reopened faster than developed nations post COVID-19 shutdowns, so the case for investing in EM remains strong. And while there is little doubt, we’ll be living in the shadow on COVID and market volatility we’re seeing an increased focus on recovery. Although it’s important to point out that this recovery isn’t equal as different regions remain significantly impacted by the virus.
For many emerging economies the human cost of the pandemic has been catastrophic however the resulting stimulus measures have creating opportunities in sectors that were previously less favourable. An increase in infrastructure spending for example has positively impacted industrials. This addition funding coupled with attractive valuations and favourable commodity prices has seen demand really pick up.
The rise of the internet and persistent technological advancement have been increasingly important drivers of growth in emerging markets. We saw digitisation really accelerate during the pandemic particularly in the areas in fintech and ecommerce. Tech stocks also performed strongly driven by supply bottlenecks, stimulus driven demand, and the ESG boom for decarbonisation and alternative energy.
Despite unprecedented synchronised government stimulus measures enacted to support consumption, headwinds persist, and we’ve seen a slowdown in global growth. This is true even for counties that have been less impacted by the pandemic such as China which recorded a 44-year low. Inflation has also begun to inch up in many regions which has potential implications for resources and financial-based stocks.
With this in mind, our focus is to buy businesses with better pricing power, market share and valuation comfort to mitigate these pressures - something the breadth and depth of the EM universe allows us to do.
Looking ahead, we’re seeing some good opportunities in domestic consumption in countries like China and India, where we own sportswear, dairy, premium auto dealers as well as digital businesses. We’re also seeing potential in the industrial space in China with opportunities across construction chemicals, heavy equipment, and the electric vehicle value chain.
We’re excited to be managing this high conviction portfolio on behalf of investors and will continue to focus on identifying high quality businesses characterised by robust balance sheet and corporate governance structures that can deliver consistent returns for our clients.
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