Emerging Markets Alpha

Growth graph1 2
Growth graph2

Growth

Revenue growth for companies but also a source of true talent, true innovation and ground breaking approaches to business.
  • In purchasing power parity (PPP) terms, emerging markets accounted for just 37% of global GDP, by 2025 the figure is expected to reach 50%.
  • Emerging markets were home to 85% of world population and 90% of those under the age of 30
  • By 2020, 5 of the world’s largest 10 economies will be emerging markets, accounting for a combined $47 Billion in GDP
  • Emerging markets will not only be a source of significant revenue growth for companies, but also a source of true talent, true innovation and ground breaking approaches to business.
  • Rapid income growth in emerging markets will create up to a Billion new consumers.

Emerging markets will outweigh the developed markets in the next two decades

Demand Graph

Demand

Rapid income growth in Emerging markets will create up to a billion new consumers.
  • Overall flows are expected to increase gradually this year and rise further in 2015, helped by a stabilization of the EM growth outlook. Equity flows are projected to benefit in particular under this environment, while debt inflows may be less buoyant.
  • Rapid-growth markets (RGMs) will increasingly look to their own markets to drive demand, with a growing middle class buying a wider range of consumer products and services.
Democracy2

Democracy

Free and fair elections is happening more often with increasing corporate governance.
  • Democracy bringing real economic growth to emerging markets
  • Emerging economies are moving from autocracy to democracy thus promoting business and economic growth
  • FDI flows directed to emerging economies where there is free and fair elections
  • Democracy dividend as professional replaces revolutionaries and post-colonial leaders.
Demographics chart

Demographics

By 2050, 25% of the world population will live in Emerging Markets, over 60% under the age of 30.

There is a vast change in the demographics and income trends in emerging markets. The populations of older, wealthier consumers in these regions are expanding rapidly. This is sufficient to have point toward positive economic growth.

The Frontier markets today commonly offer high-single-digit or even double-digit GDP growth. Public debt is low in these economies as compared to developed economies. These demographics are attractive. A key component of this are the groups aged between 15 to 34 years-old, who spend more freely than older folk and propel economies forward with the purchase of new big-ticket goods. Approximately 40% of this demographic live in frontier-markets.

“The demographic advantage of emerging markets could add an extra 2% per annum in GDP growth than would have been the case without the demographic differences, as long as the additional labor is employed effectively”. This would mean that the global growth attributed to these markets would only rise in the future. Thought this school of thought is dependent on the assumptions that could alter the predicted results, the end result seems unambiguous, that the way the global population is changing it is very likely to benefit the emerging world.

Diversification image

Diversification

“Emerging markets are a critical component of any well diversified portfolio.” -Roshan Pujari, Founder VIKASA Capital

Every well-balanced portfolio requires exposure to emerging markets. These markets tend to have less correlation to the S&P 500 and thus give portfolios extra balance. While the bulk of many portfolios are grounded in the US economy, emerging markets provide diversification and an extra source of Alpha.

 

VIKASA Capital never substitutes ADR’s or GDR’s, instead we only invest into true Emerging Market securities which provides an extra layer of diversification.

 

India, for example, is in an excellent position of providing diversification with its low correlations to both the US and China. In this current environment of a slow-down in China, india is well suited for positive growth.