'An entirely different beast': How have emerging markets, Asia and Japanese equities evolved over the past decade?
Talking Strategies: In the video below, Jupiter's fund managers discuss how changing tides over the past two decades have resulted in emerging markets, including EMD, and Asia and Japanese equities to become a core part of many wealth manager portfolios.
Heightened risk aversion led to a correction in emerging markets this year, yet at the same time investors have continued to see decent earnings growth being delivered by many companies in the region, according to Ross Teverson, Head of Strategy, Emerging Markets and manager of the Jupiter Global Emerging Markets Fund.
For Teverson, emerging markets' resilience is no surprise given the fact the region as a whole has changed significantly over the past two decades. Most notably, the sector's dependence on commodities has reduced which has resulted in the composition of the investment universe becoming much broader.
"There is a higher weighting in technology, for example; [and] healthcare is starting to become a more significant sector, as are consumer sectors," he explains. "Related to that, we have seen growth in domestic consumption increase as well as intra-regional trade within emerging markets. The flipside of that is they have a lower level of dependence upon exports to developed markets as an engine for growth."
Jason Pidcock, Head of Strategy, Asian Income and Fund Manager of the Jupiter Asian Income Fund, agrees and notes in particular the quality of companies is what has really changed; there are far more world leaders in Asia than there were some 20 years ago.
"Today there are companies that you could comfortably admit are the best in the world at what they do. There are lots of companies in north Asia in particular, where even if they are only operating in one country like China, they can be very large, very liquid and very investible."
The maturity of the equity asset class has in turn also seen fixed income in emerging regions becoming more mainstream. Alejandro Arevalo, Fund Manager, Fixed Income team and manager of the Jupiter Global Emerging Markets Short Duration Bond SICAV, points to the fact that emerging market debt as an asset class has grown more than 16 times since the turn of the century. Indeed, close to 87% of the $22trn of outstanding debt in emerging markets is denominated in local currency, which means sovereigns and corporates are finding it much easier to fund themselves in the local markets.
Meanwhile, even the more developed regions across Asia have changed in investment terms. Take Japan which remains challenged in a number of ways, as it has been in the past decade. Yet it is fair to say that even here the corporate sector has changed enormously in recent years. Dan Carter, Fund Manager of the Jupiter Japan Income Fund believes the corporate sector in Japan is just an "entirely different beast to what it has been in any of its post-war history: it is more profitable, shareholder friendlier and therefore it is more investible than it has been for a very long time."