Global trade disruptions give rise to opportunities in emerging markets

For example, Vettise said that while China’s exports to the U.S. have fallen since trade tensions escalated between the two countries, Vietnam’s exports to the U.S. have risen dramatically, accelerating a trend that had already been underway.

Emerging markets — including China, South Korea, Taiwan, and India — offer investors a key opportunity for medium- and long-term growth, particularly when looking at regional companies operating in the new technology sector, which can provide banking and other services to a rising consumer class, Vettise said.

“In emerging markets, not as many people have credit cards, mortgages, etc., compared to the developed markets,” Vettise said. “As markets progress, there is more and more of a demand for [those services].”

Emerging market economies have transformed significantly over the last decade, moving away from “old economy” sectors, such as commodities and industrials, and toward the “new economy” sectors of technology, consumer products and services, and financials, Vettise said. Companies in emerging markets are now generating a great share of their sales and revenues domestically, rather than from exports.

“Investors have sometimes outdated perceptions of what the [emerging markets] asset class offers,” Vettise said, “and because of that, maybe they’re thinking it’s a commodity exposure, so they are under-allocating [to emerging markets].”

Emerging market economies are also benefitting from the fact that they can “leapfrog” developed markets when it comes to embracing new innovations, since they aren’t held back by outdated technology, she said.

“Because you don’t have the legacy infrastructure to deal with,” Vettise said, “you get that faster adoption [of new technology].”

Emerging market economies are also more resilient than they were a generation ago, she said. For example, there are have been improvements in corporate governance and reforms in the banking sectors. In addition, countries’ international reserves have risen and represent a higher share of gross domestic product than they did in the early 1990s. That has strengthened the markets and allowed countries to avoid the type of regional market upheavals that once occurred more regularly.

“The fact that you’ve had some [economic] issues in Argentina and Turkey over the last few years, but [that these issues] have been quite isolated to those countries, really demonstrates that point,” Vettise said.

And while the U.S.-China trade tensions “provided a bit of a headwind in 2018 and 2019,” the market has reacted positively to recent developments, such as the signing of the so-called phase-one trade deal between the two countries in January, she said.

“All of these movements have presented us with [investing] opportunities,” Vettise said.