As you will be familiar, we are continually focused on the investment portfolio design to optimize risk and return. With the significant domestic (Aust) market concentration in resources & banking/property and the heightened tensions with our largest trading partner in a post COVID world (lack of immigration students, tourism, property) compounding our already high electricity and labor costs (business input costs), the inclusion of other growth regions and quality businesses are an important component of a well-structured growth portfolio.
An emerging market is one that shares characteristics of a developed economy (functioning share market, predictable government regulation and governance) however is in a phase of the population moving from low to middle / high incomes.
- These opportunities can be found in China, South Korea, Taiwan, India, Indonesia & Brazil to name a few which are much more accessible with significant advances in technology and globalization. The trusts which contain these investments are sometimes referred to as ‘emerging markets’ which can sound ‘unnerving’ so here is some background information:
- Emerging markets have been growing rapidly. They contribute to 50% of global economic growth and are expected to be 4 out of 5 of the largest economies by 2050 (overtaking the US).
- Asia is home to 4.5 billion people (60% of the world’s population) – and growing. To accommodate the move from rural to urban, China builds a new city the size of London every year.
- Economic growth follows a rapidly growing middle class. China’s household income increased 400% in the past 10 years and are expected to add 1.2 billion people to their middle class by 2030. With increased income comes higher spending on technology, retail, healthcare, travel & education.
- A young population driving growth. The median age for India is 28 years old verse Australia, US & Japan which have ageing populations. A young population drives economic growth through innovation and spending. Older demographics have structural challenges in collecting revenue and funding the needs of an ageing population in health and accommodation.
- Asia is at the forefront of technology now rivalling the top US tech companies (a large shift from a focus on low-cost manufacturing in past decades). There has been a trend of NASDAQ listed companies reverting to the Hong Kong exchange.
- The chart below compares the return of Emerging Markets (1,400 largest emerging market companies) compared to the developed World (largest 1,600 companies from developed economies) from 1988 – 2021
It goes without saying the inclusion of any investment needs to be considered as a portion of an overall strategy tailored to the unique goals, time horizon and profile of each individual. If you have any questions on your strategy at any time, we welcome your call.