investment viewpoints

    4 reasons why emerging markets could gain in 2022

    4 reasons we are positive on emerging markets in 2022
    June Chua - Portfolio Manager, Asian equities

    June Chua

    Portfolio Manager, Asian equities
    Odile Lange-Broussy - Co-Portfolio Manager

    Odile Lange-Broussy

    Co-Portfolio Manager
    Pascal Menges - Head of Equity Investment Process and Research, Client Portfolio Manager

    Pascal Menges

    Head of Equity Investment Process and Research, Client Portfolio Manager

     

     

    Need to know

    • We think the top three key themes in Asian equities will be domestic consumer-driven demand, continued digitalization and the path to carbon neutrality.
    • Having captured 75% of all advertising budgets in China, the nation’s digital media sector is expected to grow further.
    • Increased adoption of digitalization in the Association of South East Asian Nations (ASEAN) region and projected boom in Latin America (Latam) e-commerce merchandise sales could spell attractive investment opportunities beyond China.
    • We believe metaverse offers good monetization opportunities and we are positive on the enabling technology that allows a better immersive experience.

     

     

    There is little doubt that 2021 was a volatile year for Asian equities and more broadly emerging markets. Uncertainty over the Omicron variant, the pandemic led supply chain dislocations and regulatory crackdown in China added to a heady cocktail of challenges and rattled investors. But as we peer over the crystal ball for 2022, we think the markets are looking ripe for a recalibration. Here are top four reasons why.

     

    1) Opportunities in top Asian equity themes

    From a broad, bottom-up perspective at LOIM, we perceive opportunities in Asian equities under three common themes: domestic consumer-driven demand, continued digitalization/digital innovation, and the path to carbon neutrality.

    These are secular trends in our view, and may from time to time be negatively impacted by short-term issues – for example regulations, new Covid-19 variants requiring temporary social distancing measures and geopolitical tensions. However, we have a strong conviction in their materialization on a multi-year basis.

     

    2) China’s online marketing march

    Despite coming under strain in 2021, China’s digital marketing sector looks promising in the long-term. High levels of digital media consumption by Chinese adults and increased penetration of online retail sales has helped digital media corner 75% of all advertising budgets in China versus the world average of 60% in 2020, according to PWC.

    But this growth seems far from saturated as new trends like livestreaming prove attractive for both mass-market to luxury brands looking to tap into the pockets of China’s young populace. The government’s long-term policy push for a stronger digital economy could also bolster China’s online marketing sector.

     

    3) E-commerce boom in ASEAN and Latam

    Given the pandemic-led travel restrictions in parts of the ASEAN region, consumers, whether they are in a quarantine room in central Singapore, a small town in Malaysia or in rural Taiwan, will not be turning their backs on the ease of online shopping for everything from flip flops, comfort food to antibiotics or even a rental treadmill.

    ASEAN’s digital economy is projected to hit USD363bn by 2025 and USD1tn by 2030, estimates Bain & Company. Covid-19 has accelerated the adoption of digitalization and the industry growth trajectory remains positive across Asia and not just China.

    Consumer-focused companies and financial institutions, in particular, clearly see this as a key driver of future growth and are investing heavily to offer a seamless journey to their customers, particularly the young generation.

    Latam e-commerce merchandise sales are also expected to more than double to an estimated $200bn (17% penetration) over the next 5 years, according to Eurometer. This spells attractive investment opportunities across the e- ecosystem particularly for marketplaces and fintech providers.

     

    4) Metaverse

    Metaverse has come to mean more than just current VR (virtual reality) headsets or AR (augmented reality) glasses. No longer considered solely for savvy gamers or young people looking to escape reality, metaverse could also be a gold mine for avid investors.

    We are positive on the technology that enables a better immersive experience and helps scale metaverse in a real ecosystem. This technology could be in sensing, display or artificial intelligence, which continues to evolve with huge R&D investment across the supply chain. Luxury brands likes Gucci, Balenciaga, and Burberry1 have already announced plans to invest in metaverse related development with a digital Gucci bag sold for USD4,000 on a gaming platform last year and all eyes will be on how this ecosystem evolves ahead.

     

    To find out more about these exciting trends you can either download our Asia 2022 outlook or our broader Emerging Markets 2022 outlook by clicking the button on top.

    To learn about our Asia high conviction strategy click here. Discover more about our Emerging markets high conviction strategy here.

     

    Sources

    1 Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document.

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