Independent investment manager Redwheel has highlighted three tailwinds it expects to drive the next generation of emerging markets.
The next generation emerging market equities (NGEN) remained resilient throughout the Covid-19 pandemic. However, growth has slowed in 2022 because of the Russian invasion of Ukraine, and the rise of inflation is likely to impact the price and supply of commodities from the two countries.
Valuations for NGEN markets are not stretched though and were already trading at a discount compared to larger emerging markets before the conflict.
Additionally, NGENs are dominated by domestic investors unlike many larger emerging markets, which could face higher foreign outflows.
This makes it a useful time to look at NGEN markets with a three to five year view, Redwheel argued
Redwheel believes that three significant tailwinds should drive the next emerging markets.
These include: the relocation of labour intensive manufacturing away from China into Asian frontier economies; the recovery of global travel, which could boost frontier economies; and commodity prices which will benefit producers of ‘green’ materials such as copper and lithium.
The NGENs are therefore on a long-term growth path according to Redwheel.
Through continued engagement and understanding of the macroeconomic and geopolitical factors, the investment manager aims to take advantage of growth opportunities within countries that are currently under-represented by indices, yet posses investment opportunities akin to some of the larger emerging markets 10-15 years ago.
Established in 2000, Redwheel has more than 150 people in its workforce, including 56 dedicated investment professionals, with offices in London, Miami, and Singapore.
