4 reasons why emerging markets could gain in 2022

 

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

For professional investor use only
This document is issued by Lombard Odier Asset Management (Europe) Limited, authorised and regulated by the Financial Conduct Authority (the “FCA”), and entered on the FCA register with registration number 515393.
Lombard Odier Investment Managers (“LOIM”) is a trade name.
This document is provided for information purposes only and does not constitute an offer or a recommendation to purchase or sell any security or service. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This material does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before entering into any transaction, an investor should consider carefully the suitability of a transaction to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. This material contains the opinions of LOIM, as at the date of issue.
Neither this document nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term "United States Person" shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income.
Source of the figures: Unless otherwise stated, figures are prepared by LOIM.
Although certain information has been obtained from public sources believed to be reliable, without independent verification, we cannot guarantee its accuracy or the completeness of all information available from public sources.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by LOIM to buy, sell or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change. They should not be construed as investment advice.
No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient, without Lombard Odier Asset Management (Europe) Limited prior consent. In the United Kingdom, this material is a marketing material and has been approved by Lombard Odier Asset Management (Europe) Limited  which is authorized and regulated by the FCA. ©2022  Lombard Odier IM. All rights reserved.