Global emerging market (GEM) has immense potential to offer superior risk-adjusted returns over the long term. However, Eastspring Investments emphasises that when it comes to emerging markets, investors shouldn’t just restrict themselves to Emerging Asia. The asset manager considers Emerging Europe, Middle East, and Africa (EMEA) as well as Latin America as regions with promising companies and sectors.

The asset manager urges investors to broaden their horizons and diversify their investments. According to Samuel Bentley, Client Portfolio Manager, Equities at Eastspring, China has been an important growth driver of the Asian emerging market. However, with moderating growth, it now has a domestic-driven growth policy. Hence, there is a requirement to diversify.

On regional indices, Bentley said, “Other emerging regions may offer opportunities in sectors which are under-represented in Asia.” To explain the concept, he contends, “While the financials and technology sectors have significant weight in the MSCI AC Asia Index, the materials and consumer staples sectors have higher weightings in the MSCI EM Latin America Index.” At the same time, the communications and energy sectors have more prominence in the MSCI Emerging EMEA Index.

Speaking of exposure within Asian emerging markets, Eastspring indicates that Singapore, Malaysia, and Indonesia have higher exposures to financials, while Korea and Taiwan are more inclined towards technology.

Further, Bentley suggests investors capitalise on structural trends such as decarbonisation and green transition. While Emerging Asia can reap the benefits from these trends, the commodity-rich emerging markets outside Asia, like Latin America and the EMEA, are also well-positioned, as per Bentley.

Eastspring also points out that the shifts in the global supply chain and the China Plus One strategy would bring Mexico into prominence. Due to rich lithium and copper reserves, Latin America has an integral role in the electric vehicle (EV) supply chain.  At the same time, the competitive manufacturing bases in the CE3 countries (Poland, Hungary, Czech Republic) and Turkey are likely to draw a lot of nearshoring opportunities, as per Eastspring.

That said, the asset manager adds, “the reallocation of Foreign Direct Investments (FDI) flows arising from the global supply chain shifts will be uneven and create winners and losers.”  It emphasises that for EMs, there isn’t any uniform narrative, which means each region, whether in Asia, Latin America, or Eastern Europe, has its benefits.

In conclusion, Bentley reminds investors that they need to look at the broader picture for more opportunities. He says, “Investors that tap GEM’s broader universe can enjoy a wider and more differentiated opportunity set. Meanwhile, the higher market volatility of some of the emerging regions outside Asia lends well to an investment process which looks beyond the noise and is fundamentally focused.”

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