Tom: As investors, we need to keep up with a fast changing world. Take
emerging markets, it’s easy to fall back on an out-of-date cliché. Developed world money is still looking for opportunities in emerging markets but it’s a two-way traffic now.
Investment is about stories, sometimes they’re personal. This is my father in law, it’s 1955, he’s just arrived from India to work in Coventry. Thirty years later his son is an engineer at the city’s most famous carmaker, Jaguar. Fast forward to today, who owns this iconic brand? Well, it’s Mumbai listed, Tata Motors. For my family and for many others, the emerging market story has come full circle.
I’m off to the city to catch up with Nick Price; he manages Fidelity’s Emerging Markets Fund .
Nick: In its most simplistic case, you’ve got about a sixth of the world’s seven billion population, living, and working in emerging markets. From a GDP perspective maybe about half of the world’s GDP today is generated in emerging markets.
So there’s a real growth opportunity in emerging markets and that growth is driven of course by a far better demographic profile, a younger population. For example, in Mexico one would see people taking more flights - that’s growing about 12 to 15 percent a year.
Tom: So I guess one of the things which people tend to bring up when they talk about emerging markets is the question of risk. Do you think that investing in emerging markets is riskier than investing in developed markets?
Nick: It is the factory of the rest of the world and so where demand moves dramatically, they can be very significantly impacted. So I think from a short term price volatility perspective, I would say if you’re investing in emerging markets you've got to be prepared for more price volatility.
Tom: There are other risks aren’t there? There’s political risk and I guess another thing that people often mention is corporate governance.
Nick: Yeah, there are huge numbers of events which are very difficult to predict politically. I guess my bottom line from a political perspective is I think pragmatism generally wins the day.
There are lots of social issues, not too different to
Europe, where there are lots of social pressures between the haves and the haves not. But in general I’m not overly concerned by the political risk that I see.
Tom: Do you spend a lot of time in country talking to companies? How important is an active investment approach?
Nick: Yeah I know it’s critically important. You know Fidelity is fortunate in that we’ve got some 48 analysts in emerging markets. We’ve got offices in Mumbai where I was just earlier this week, in Shanghai, in all the local markets, so we have a great presence. And we have a very strong analyst team and actually an analyst team that’s a little more geared towards the consumer which is where I tend to find most of the opportunities.
Tom: As we drive into the future, emerging markets are going to be a big part of all of our investing stories.