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Emerging markets roundtable: An uneven recovery

Funds Europe – Which areas should be key to investment strategies focusing on developing countries in the two to three years ahead? Which countries are worth looking out for?

Varsani – Given the dispersion in emerging markets and the trend to localisation as opposed to globalisation, country-focused investing could rise. Also, megatrends and thematic investing, so clearly tech, innovation, digitalisation, healthcare, are worth watching out for. We’re seeing strong interest in thematic exposure going beyond just sector or country exposure.

Cardinale – Emerging market exposure could help position for a world of higher inflation. We talked about separating out China from the rest of EM.

Spano – In the short term, the inflation narrative could be favourable for some areas like Latin America, especially Brazil, that are quite keen in terms of export of soft commodities, or oil like Mexico, or emerging Europe, where you have a big chunk of Russia which is linked to the trend of the oil. Therefore, in your asset allocation those are the countries to look at if you believe the commodity cycle is picking up. Of course, in the long run, I would rather be invested in Asia, and definitely in China, because the type of growth that you have in there is incomparable with the rest of the world.

Bao – Sorry to be so pessimistic, but I don’t think international travel will resume worldwide before 2022, so basically in a two or three years’ timeframe. We are just at the mid-resumption of international travel. I agree that if you want to take advantage of reflation within EM, you should look into Latin America. You can find a lot of reflation proxy companies or other commodity-related countries. Tourism-related countries in Asia-Pacific will also be really interesting in terms of geographic diversification.

If we look a bit further with a structural view longer-term, China and India are definitely the places to be.

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