Emerging markets progress from consumption to innovation: Experts

Emerging markets offer compelling opportunities beyond the booming middle class-consumption narrative, according to investment specialists, who said the asset class has other significant growth opportunities, such as innovation, despite political and regulatory risks.

More investors are pivoting to emerging markets amid weakened demand for the USD and blue chips like the Magnificent Seven becoming expensive.

At the performance level, the MSCI Emerging Markets Index has delivered about 44% p.a. in the year to April, while the MSCI World returned 28% p.a. Year-to-date, this works out to be 14% p.a. and 5.26% p.a. respectively.

On top of these, J. P. Morgan Asset Management Asia head of investment specialists for emerging markets and Asia-Pacific equities Alexander Treves said there are even more compelling reasons to invest outside of developed markets.

"The USD has historically been a safe haven from risk. People are reassessing some of that to some extent, because, already, it's such a well-held asset class. Already, USD equities are expensive. Already, there's been a lot of flow into them, and so when we see geopolitical events and concerns emanating out of the US, that's causing people to look to the East right now," he told the annual Stockbrokers and Investment Advisers Association (SIAA) Conference.

"People I speak to, having had a lot of USD exposure, now think, 'Maybe at the margin, my next dollar should be invested in another part of the world, maybe a faster-growth part of the world, or a cheaper part of the world, or a less risky part of the world'," he said.

Emerging markets are synonymous with significant demographic shifts that underpin consumption and consumer confidence.

But it is the innovation piece in emerging markets, Treves noted, taking shape.

"It's emerging markets companies selling things, innovating, generating value and running businesses with high barriers to entry. That's much more exciting to me. So, the fact that technology is a big part of emerging markets now is something to celebrate, because it shows that we've got a higher quality opportunity set," he said.

Echoing this rhetoric, Platinum portfolio manager of Asia strategies Cameron Robertson pointed to Korea and Taiwan.

"The world's chips used in all these AI data centres come out of those markets. Electrical infrastructures going into data centre builds also come from there," Robertson said.

More vulnerable to the oil and energy crisis, on the other hand, Southeast Asian countries, like the Philippines, experienced massive sell-offs.

"These [selloffs] are quite big moves, but there are always some more subtle themes that are playing throughout the region," he said.

"When you think about some of the risks that are coming through, like the Iran war, what's the solution to that? Sometimes the solution also sits in Asia, because of the innovation there. The world's biggest battery company, Chinese business CATL, is seeing increased orders for energy storage solutions for the grid."

When assessing the quality of governance of emerging markets companies and the regulatory environment they operate in, Treves said this requires work and due diligence, taking into account the wide range of governments in emerging markets.

"Governments play different roles in different markets in our part of the world. The Chinese government is obviously much more interventionist in capital markets, and we play the case in some other places. Sometimes that causes issues, sometimes it's actually a tailwind.

"China's ability to build that infrastructure and get stuff done is directly correlated to the role the government plays there," Treves said, adding that, ultimately, it comes down to a stock-by-stock basis.

Robertson added, "governance can make huge impacts to returns," highlighting the case of South Korea's and Japan's corporate governance improvements.

"When you don't have some of those regulatory backstops, which in many emerging markets you don't have, a lot of it comes down to the quality of the individuals and teams that you're backing and their ethical moral compass, which sits on a scale," Robertson said.

"So, you have to incorporate that in what you're willing to pay."

Financial Standard is the official media partner of the 2026 SIAA Conference.