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At the end of November the thoughts naturally go back to the coming new year and the investment opportunities that lie ahead. A brief look at some of the strategy notes that have already been issued by the major banks shows that investment opportunities in emerging markets are favored by many.
It is easy to understand the reason for this: emerging markets have many major theme-based megatrends, including progressive urbanization and a population increase of 1.4 billion in 2035 (and within this the increase in the importance of a consumer-focused middle class). Of course there are also many potential issues related to corporate governance, corruption and the natural volatility of everything that the label & # 39; emerging & # 39; has. It is therefore possible to gain easier access to the theme through UK-listed investments whose income, profits and cash flows are generated disproportionately from emerging market locations.
The first big name mentioned by many in search of global exposure to emerging markets will be Unilever (LON :). With brands such as Surf, Magnum and Lipton Tea, the consumer goods company already generates more than 60 percent of its annual turnover of nearly 50 billion euros from emerging markets. What struck the Anglo-Dutch company in October was the huge rise in emerging markets with underlying sales growth of 5.1 percent compared to a ridiculous decrease of 0.1 percent for developed markets.
It is clear that the theme of emerging markets is strong here, but with bond proxy stocks such as Unilever that have become so popular with investors in recent years, it is no surprise to see a strong valuation today. It is not necessary to pursue this share here.
In contrast, the mining sector and the financial sector are currently both out of favor due to the reduction in global growth hopes during the year. Times may change, however, as estimates from supranational bodies such as the International Monetary Fund expect lower growth rates in the United States, but flat or rising levels of growth elsewhere in the world, including in emerging markets combined. This potential market rotation has paid off in the financial markets in the past quarter and, given the level of outperformance by proxy areas and related bonds in recent years, this should continue.
Three names that should benefit from such a market shift are Anglo American, Prudential and Standard Chartered.
Anglo American (LON 🙂 entitled a recent presentation & # 39; Positioned for the Future & # 39; and & # 39; the world's leading and diamond producer – both from major African mining assets – will benefit from both clean air legislation and a rising wealth affecting the demand for these raw material outputs. But Anglo American is much more than just a bunch of old strong African mining assets.
More recently, it has concentrated its expansion efforts in South America and in a world where new large copper mines are hard to find. It announced a few months ago that his mine in Quellaveco in Peru was a generative possession with sufficient reserves to deliver a century of production. Once the mine reaches full capacity, it will produce an average of 330,000 tonnes of copper per year in the first five years. With an important raw material needed for urbanization efforts in the urbanization area, this is a good omen for a group whose management team has focused on debt reduction in recent years and could push stocks back to the level closest to the beginning of the current decade.
Unlike Anglo American, insurance giant Prudential (LON 🙂 is gradually focused on improved simplification. The core of the company is no longer the "Man from the Pru" with the same name, but a pan-Asian insurance company supplemented by a North American division that generates money. Insurance is a clear area of ??growth, as individuals in emerging markets want to protect and preserve rising wealth. In August, the Asian business again grew by a double-digit percentage, with a very strong return on capital and – crucially – a very high customer loyalty with a customer loyalty of 95 percent.
The problems in Hong Kong have fueled some investors, but any volatility in growth here will be more than offset by opportunities in the vast Chinese market on the mainland and in the wider Asian geography. Earlier this year, Prudential noted that the option in protection insurance in China was currently more than US $ 800 billion.
The profitability of the Asian division is already in line with the American division and with a considerably higher growth of new companies, a large company will become a colossus by the mid-2020s. The stock offers at least room to return to the level of eighteen months ago.
Meanwhile Standard Chartered ]] (LON 🙂 – present in 70 countries around the world – is active in banking in the African, South American and Asian regions, where Anglo American and Prudential are also active. After a few years of reversal, the slowdown in the financial sector has placed the share at less than 0.7 times the book value, which seems attractive given the company's objective of achieving a 10 percent return on equity in 2021.
Banks are generally positively correlated with economic development, but have recently been blocked by ultra-low interest rates and fears of a malaise in trade and growth. A continuation of recent expectations would give this name – which almost exclusively generates profit from emerging markets – a chance of being born again after a difficult last few years. In its recent report, Standard Chartered reported an 8 percent increase in average interest income to US $ 603 billion, a statistic that should continue to rise along with the size and importance of the emerging market it serves.
Standard Chartered PLC (STAN)
Emerging markets remain a positive mega-theme for investors to position their portfolios. However, instead of just buying, a strategy to understand the underlying exposures of the sector and determine whether a certain area or another area is already highly valued by investors is also important. It is worth bearing in mind that despite the undoubtedly ongoing trials and tribulations around Brexit in the early 2020s, the British stock market at least offers the opportunity to be much more than just a play of the local economy.
