2020/21 Year in review: Emerging markets

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.

This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (‘Fidelity Australia’). Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International. Prior to making an investment decision, retail investors should seek advice from their financial adviser. This document is intended as general information only. Please remember past performance is not a guide to the future. Investors should also obtain and consider the Product Disclosure Statements (‘PDS’) for the fund(s) mentioned in this document before making any decision about whether to acquire the product. The PDS is available on www.fidelity.com.au or can be obtained by contacting Fidelity Australia on 1800 119 270. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider such matters before acting on the information contained in this document. This document may include general commentary on market activity, industry or sector trends or other broad-based economic or political conditions which should not be construed as investment advice. This material may contain statements that are “forward-looking statements”, which are based on certain assumptions of future events. Actual events may differ from those assumed. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be construed as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity’s funds is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Details of Fidelity Australia’s provision of financial services to retail clients are set out in our Financial Services Guide, a copy of which can be downloaded from our website. The information transmitted is intended only for the person or entity to which it is addressed and may contain confidential and/ or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you received this in error, please contact the sender and delete the material from any computer. Any comments or statements made are not necessarily those of Fidelity Australia. All e-mails sent from or to Fidelity Australia may be subject to our monitoring procedures. E-mail communications cannot be guaranteed to be timely, secure, error or virus-free. The sender does not accept liability for any errors or omissions which arise as a result. © 2021 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.

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