Spotlight on Karnail Sangha, Senior Portfolio Manager, Robeco
Global Thought Leader Spotlight
Karnail Sangha, Senior Portfolio Manager, Robeco
In my role as Senior Portfolio Manager of Robeco’s Emerging Markets Equities team I am responsible for managing the Emerging Stars Equities Fund, a high conviction, concentrated and index agnostic strategy, and the Emerging Sustainable Stars Equities Fund, a high conviction, concentrated and index agnostic strategy with a superior sustainability profile.
Whether you are looking for short-term gains or long-term growth, the prospects for emerging markets (EM) look strong. In the long run, the transformation of global economic and political landscapes is expected to benefit EM, though it comes with the potential for increased geopolitical uncertainties. While China has dominated the past few decades, a new contender, India, is emerging on the horizon and stepping into the spotlight.
These new emerging markets represent a diverse and dynamic group ready to lead the next wave of global growth.
Emerging markets have long been the engine of global economic growth, offering vast opportunities and presenting unique challenges. With increased geopolitical uncertainty in recent years, the outlook for emerging markets has been the subject of intense scrutiny by investors. These dynamic countries, characterised by rapid growth, evolving demographics, and increasing urbanisation, will play a crucial role in shaping the world economy going forward.
Investors will look back at the last decade or so and wonder whether they should consider renewed or increased exposure to EM.
It is easy to understand why expectations of EM are anchored to the past. From 2001 to 2010, the MSCI Emerging Markets Index outperformed the MSCI World Index by a wide margin. Yet since 2011, EM equities have significantly lagged developed markets, and many investors are now underweight the asset class.
However, even a cursory glance at the history of EM performance will quickly show that looking back to assess the future is not a particularly useful approach to take.
Instead, we think investors should focus on the changing undercurrents in EM economies and markets that we expect will reignite returns in the decade ahead, while remaining cognisant of associated risks.
Key developments/themes driving risks and opportunities across emerging markets
1. Geopolitical and Economic Stability: Political reforms, governance improvements, and sound economic policies are crucial for attracting foreign investment and enhancing investment prospects. However, political instability, conflicts, high debt levels, and poor fiscal management pose risks to economic volatility.
2. Regulatory and ESG Frameworks: A stable regulatory environment and strong ESG practices are vital for creating an attractive investment climate and improving long-term sustainability. Conversely, unpredictable regulatory changes, corruption, and poor ESG practices can deter investment and lead to reputational damage.
3. Growth Drivers: Technological innovation, particularly in fintech, e-commerce, and renewable energy, along with investments in infrastructure, healthcare, and education, can drive economic growth. Additionally, global trade dynamics and consumer market expansion due to a growing middle class are significant opportunities for investment.
4. Monetary Policy and Market Dynamics: Stable currencies and supportive monetary policies can enhance investor confidence, while currency volatility and restrictive monetary policies can impact investment returns. Trade agreements and integration into global supply chains can counteract the risks posed by trade wars, tariffs, and protectionism.
The main implications for institutional and sophisticated investors
Opportunities:
Growth Potential: Emerging markets often have higher economic growth rates, offering the potential for higher returns;.
Diversification: Investing in emerging markets can provide diversification benefits to an investment portfolio.
Demographic Advantages: Many emerging markets have youthful populations, which can drive consumer demand and support long-term economic growth.
Innovation: Rapid technological adoption in areas like fintech and e-commerce can present unique investment opportunities.
Risks:
Political Risks: Political instability can lead to economic volatility, affecting investments.
Economic Volatility: High debt levels and inflation can undermine economic stability.
Currency Volatility: Fluctuations in local currencies can impact investment returns.
Regulatory Changes: Unpredictable regulatory environments can deter investment.
Strategic Positioning:
Active Management: Due to the higher risks, including currency volatility and political uncertainty, active management is often necessary in emerging markets.
Granular Exposure: Investors may want to consider more granular exposures within emerging markets to target the most compelling opportunities.
Investors should consider a nuanced approach that includes thorough research, risk management, and strategic partnerships to navigate the complex landscape of emerging markets
In conclusion, while emerging markets offer attractive growth and potential diversification opportunities, they also come with significant challenges. Investors need to balance these factors carefully and adopt strategies that can capitalise on the opportunities while mitigating the risks. Regular monitoring and a willingness to adapt to changing conditions are essential for success.
Robeco is well placed to take advantage of the opportunities and to respond to the inherent risks due to our long and deep experience in managing Emerging Market assets; our investment approach combining country analysis with stock selection; and leveraging on our in-house sustainability knowledge base built over 20 years.
Robeco provides investors with the opportunity to get exposure to emerging markets in a variety of ways ranging from customised solutions to standard emerging market exposure to working in partnership.
Karnail will be presenting at Global Investment Institute’s upcoming Equities Investment Forum, taking place on Wednesday, 11 September 2024 at the Grand Hyatt Melbourne, Victoria.
To register your interest in attending, click here or for more information email zlatan@globalii.com.au.
Karnail Sangha, Senior Portfolio Manager, Robeco
Karnail Sangha has been a Senior Portfolio Manager within the Robeco Emerging Markets Equity team since 2001. He is Co-Portfolio Manager for the Emerging Stars and Sustainable Emerging Stars Equity strategies. Furthermore, he also provides research coverage on India.
Prior to joining Robeco in 2000, Karnail was a Risk Manager/Controller at Aegon Asset Management where he started his career in the industry in 1999.
Karnail holds a Master's in Economics from Erasmus University Rotterdam and is a CFA® charterholder. Karnail is also fluent in Hindi and Punjabi.
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Disclaimer
The views expressed in this publication are solely those of the individual and do not reflect those of their employer organisation. These views should not be relied on as research or investment advice regarding any stock and are subject to change. There is no guarantee that any forecasts made will come to pass. Forecasts are subject to numerous assumptions, risks, and uncertainties, which change over time, and the individual undertakes no duty to update any such forecasts. International investing may involve risk of capital loss from unfavourable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations.
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