Technology-savvy consumers in economies that have reopened and are in post-COVID-19 recovery phase, namely China, Taiwan and South Korea, are fuelling a revival within emerging market equities, according to American Century Investments’ senior portfolio manager, Patricia Ribeiro.  

“Young, fast-growing populations are about to become middle class consumers. COVID-19 has spawned a genuine stay at home culture, whether it be remote learning, virtual medical visits, working and shopping from home. And there’s a huge opportunity for investors to capitalise on this structural shift,” she said.

“Emerging market economies represent 80 percent of the world’s population, making younger, connected consumers key to domestic demand. Investment inflows are now starting to reflect this trend.”

And, according to FactSet, the second quarter of 2020 proved to be the best-performing quarter for emerging market equities in more than a decade, with the MSCI Emerging Markets Index up another 10 per cent in the third quarter (as of October 2020). 

Ms Ribeiro believes China has arguably had the best response to the pandemic, with domestic activity already normalising.

“China has left behind the worst of its COVID-related impacts and is well ahead of other jurisdictions, both in emerging and non-emerging economies,” she said.

“From an equity perspective, that’s leading to increased production, manufacturing and consumption – and earnings growth has recovered in response. The prospect of a recovery in emerging market equities is quite compelling, particularly in an economy like China’s.”

She believes this momentum is set to continue as investor sentiment improves.

“We believe this momentum is set to continue as investor sentiment improves. When combined with extraordinary fiscal and monetary stimulus from global central banks in response to COVID, global liquidity could potentially sustain – if not lift – emerging market equities even further,” she said.

According to Ms Ribeiro, valuations in the asset class – compared to developed markets – also continue to trade at a discount to historical averages.

“Strong headwinds do still remain, and while China’s domestic activities have normalised, caution is still required, particularly until such time as the virus is fully contained,” she said.

“Ultimately, however, the sheer volume of emerging market consumers now shopping, working and schooling online, means investors are increasingly considering the merits of emerging market equities.”