The emerging investment opportunities in a heavily discounted market

This article first appeared in Livewire markets on 8 February 2023

Clear themes are emerging amid all the market noise. There are opportunities available for those who look for them, the market is not overpriced, and value managers are still finding fertile hunting grounds. Even growth is starting to get a look in again. 

But when you start your search, don’t forget about emerging markets. After all, these countries are often home to some of the fastest-growing consumer populations in the world and are likely to dominate the global economy in the future.

Arguably, emerging market indices are becoming increasingly competitive with developed market peers too. Some of the world’s biggest companies have come from emerging markets –think names like Infosys, Tencent Holdings or Petroleo Brasileiro (Petrobras).

Amit Goel, portfolio manager for the Fidelity Global Emerging Markets Fund, notes that the emerging markets index is trading at its largest discount to developed markets in its history - and at a 40-50% discount at that. While caveat emptor should always be an investor’s decree, this discount has created opportunities not seen in years. 

So, which regions and stocks are providing the most compelling value right now? I approached some of the experts to find out what they are watching and their favourite stocks.

Skerryvore Asset Management's Glen Finegan, Ox Capital's Dr Joseph Lai and Fidelity's Amit Goel.  

Skerryvore Asset Management's Glen Finegan, Ox Capital's Dr Joseph Lai and Fidelity's Amit Goel.  

The reopening of China

The reversal of tight policy in China, particularly around the zero-COVID policy, is opening doors.

That's according to Dr Joseph Lai, Chief Investment Officer for Ox Capital, who notes the Chinese economy had previously been under extreme pressure.

“Given the extreme negativity, even the best quality Chinese businesses traded on attractive valuations," Lai said. 

"We like the industries of the future, like champions of the internet and consumer sectors, while avoiding the industries of the last decade, like property developers and Macau gaming." 

Ox Capital currently holds some of China’s largest tech names, such as Alibaba (HKG: 9988) and Tencent Holdings (HKG: 0700).

Goel is also monitoring this theme.

“We have exposure to China Mengniu Dairy (HKG: 2319), the country’s largest milk products company," he said. 

"The reopening of the economy after lockdowns is leading to a cyclical recovery, while the structural growth story of milk consumption and the shift towards higher margin products remains intact and should lead to higher revenues and margins over the long term." 


We’ve become accustomed to inflation being considered a bad thing – but for some companies, this isn’t necessarily the case. This is particularly true if they have pricing power – that is, the ability to adjust prices without necessarily affecting demand. 

Glen Finegan, Lead Portfolio Manager and Co-Managing Partner at Skerryvore Asset Management, views strong pricing power as a constant theme. You could argue it’s equally important whether you are investing in developed or emerging markets.

The question then might become where to find that pricing power.

“Well-managed retailers, which often benefit from inflation, have been a good hunting ground for our philosophy – especially if they use an efficient business model to generate operating leverage that drives earnings growth, as both Jeronimo Martins (ELI: JMT) and FEMSA (NYSE: FMX) do,” Finegan said. 

Portuguese company Jeronimo Martins expanded its operations to become Poland’s largest retailer and also has operations in Colombia. It has a focus on affordable, quality, private-label products.

FEMSA operates the Oxxo chain of convenience stores in Mexico and also offers services like basic banking and e-commerce.

Goel noted that inflation and interest rates are considered risks for emerging markets – but that could equally be said of most asset classes and markets.

“We continue to believe that emerging markets are well placed due to their economies’ underlying structural growth prospects, which support corporate earnings and returns over the medium to long term,” Goel said. 

The Indian economic boom

India has long been touted as the biggest growth opportunity since China – and its economy is certainly on the rise at the moment. The country has done significant work in reforming the business and financial environment along with benefitting from its demographics and population size.

Goel noted that a range of financial companies in the emerging markets index are taking market share from developed market peers – as well as from government-owned companies within their domestic bases.

“We own India’s largest private sector bank HDFC Bank (NSE: HDFCBANK), as it has a long history of providing high double-digit returns on equity across economic cycles due to its strong franchise, high quality management team, low cost of funds, conservative underwriting and focus on technology to improve efficiencies and enhance client experience,” he said.

Some investors have been spooked by the recent Hindenberg Research allegations of fraud in Adani (NSE: ADANIENT) and have avoided India as a whole. But Lai sees this as an opportunity in itself.

“We have been investors in the Indian market and have followed Adani for a long time. Adani is only one company out of many. The Indian private bank sector and internet names as prospective opportunities for us,” Lai said.

Vietnam as a factory to the world

COVID-19 created a lot of challenges in global supply chains – and unsurprisingly, there was a need for companies to diversify their supply chains. Vietnam has been particularly dominant in this space.

“Vietnam has been a major beneficiary of supply chain transformation, with its cheap labour and good infrastructure," Lai explained. 

"Household incomes are growing and fuelling rapid rises in consumption. We see strong consumer companies as prospective opportunities." 

An example that Ox Capital hold in Vietnam is Vietnam Enterprise Investments Ltd (LON: VIEL) which invests in listed companies on the Hanoi and Ho Chi Minh stock exchanges.

Final tips for emerging markets

Should you choose to look at companies in the emerging markets space, our experts have a few recommendations.

Goel cautioned investors from taking a top-down approach and to have a deep understanding of companies through fundamental research. Lai also pointed to the importance of quality stocks with attractive valuations for growth potential.

Meanwhile, Finegan noted that it can be a volatile area to invest and cycles can be unpredictable.

“We find investing in businesses with high levels of alignment, strong franchises and transparent financials offer the best chance of reaching your long-term investment goals,” he said.