Ashmore: A Structural Growth Story – Emerging Markets Overtakes S&P 500 in Tech!

Article Link:


  • Fernando Assad, Jan Dehn and Chris Mader of Ashmore examine the make-up of the MSCI Emerging Markets Index (“MSCI EM Index”), how the composition of the index has changed over the past decade and the potential implications from those changes.
  • Many individuals still view emerging markets as a commodity or cyclical growth story. However, structural growth drivers in technology, consumer, telecoms and health care now account for over 50% of the MSCI EM Index, compared to cyclical industries, which only make up roughly 20% of the Index.
  • Emerging market valuations (P/E ratio) trade in-line with their historical average and significantly below developed markets (as represented by the MSCI World Index). The authors contend that emerging markets should trade at a higher than historical average valuation because of better earnings visibility and long-term growth for structural growth companies (compared to cyclical companies).
  • Technology is particularly important for the transition of emerging markets from a cyclical growth story to a structural growth story. Seven out of the ten largest companies in the MSCI EM Index are now technology companies, and in aggregate, technology is a greater percentage of the MSCI EM Index (23%) than technology is as a percentage of the S&P 500 Index (21%).

Our Take

  • Ashmore is one of many asset managers whose materials we read on a regular basis. We view their work in emerging markets as particularly useful during our market and economic reviews.
  • In addition to the positive factors noted in this paper, other positive characteristics of emerging markets include: many countries have significantly improved their underlying financial condition (especially compared to the late 1990’s), an emerging and increasingly wealthy middle class is aiding in the transition of many larger countries from export-driven to service-oriented and the asset class as a whole has a relatively more attractive growth and valuation profile (compared to many developed market countries).
  • Emerging market equities (in aggregate) have performed relatively poorly (notably compared to the U.S. equity market) over the past 5+ years. However, weak recent performance is another factor that we view as a positive because we tend to gravitate towards areas/regions of the global equity market that have underperformed (we try to follow the mantra of buy low, sell high as opposed to buy high after great results and then sell low when disappointed).
  • The combination of positive factors noted above and in Ashmore’s paper, along with a number of other factors, make emerging markets one of the areas of focus in our portfolios currently.
  • More specifically, we have made an investment in an emerging market equity manager that we have a high-level of conviction in for the long-term. Based on our research, we believe this particular firm has a strong investment team, is led by a talented portfolio manager and places a heavy emphasis on “boots on the ground” research. We believe all of those factors are critically important to navigating investment opportunities in emerging markets.