Conference Presentation, Panel
De-Risking Opportunities in Emerging Markets
Milken InstituteJonathan Wheatley, Ghadir Cooper, Michał Krupiński, Andrew Newington, Charles Robertson, Andrew Fairbairn, Walter Lamberson, Richard Evans, Aubrey Ruby, Dietrich Heitmann, Funda Ehan, Gina Sanchez, Spiros Poulios
- Andrew Newington anticipates that macro headlines and Fed policy, including a potential reversal of tightening if US consumer stress intensifies, will heavily influence capital raising and management trading behavior, while noting that US rate hikes will likely impact US consumers more severely than emerging market consumers in the medium term.
- Charles Robertson forecasts that emerging market FX ex-China is 5% to 10% undervalued relative to its 25-year average, with Turkey specifically cited as 30% cheap, and predicts 7%, 8%, or 9% economic growth for India driven by adult literacy thresholds similar to China's historical trajectory.
- Investment horizons are expected to span three to five years for sustainable growth companies, with Gadir Cooper planning to price in all country and governance risks into the cost of equity, while Newington outlines a strategy targeting long-term illiquid assets with 5 to 15-year horizons to capture secular growth.
- Risk assessments include a 4% annual probability of a major negative event like a coup in Nigeria's upcoming elections and a 14% annual chance of dramatic failure in Zimbabwe, though Robertson suggests emerging markets may not fall as severely as in the 2007-2008 crisis due to lower correlations and reduced dependence on external capital.
- Key growth themes for emerging markets include the digital economy, e-commerce, clean energy, electric vehicles, and fintech, with Newington predicting renewable power costs will fall below fossil fuel equivalents and India's biometric system enrolling 900 million people within two years.
- Demographic shifts are central to the outlook, with 90% of the global population projected to be under 30 within 15 years, driving demand for education, insurance, and tourism, particularly as Newington notes China graduates 4.7 million STEM students annually and Brazil ends a three-to-four-year consumer recession.
- Country-specific expectations include potential upside for South Africa if reforms follow May elections, recovery in Nigeria post-February elections, and a resumption of confidence in Brazil under policy continuity, though Brazil is currently viewed as overvalued relative to its long-run rate.
- Structural changes expected to define the "new normal" involve a shift away from "easy money" and high external deficits, requiring investors to identify companies capable of generating returns exceeding tightening capital costs, while private education models aim to deliver tertiary curriculum at $1,000 to $2,000 annually.
- Market liquidity constraints in certain emerging markets are expected to create protracted buying opportunities during bear markets, with consolidation required in sectors like Ghana's banking industry before they become investable at scale, and South African pension funds (100% of GDP) helping to support valuations.
- Investment strategies prioritize bottom-up stock picking to minimize factor risk and focus on ESG factors to achieve higher risk-adjusted returns, with a move away from predicting political events toward identifying assets benefiting from stable secular growth and human capital development.