Emerging Markets:
What’s driving change?
Growth might be slowing over the medium term, but the long-term drivers remain intact.
Decarbonisation, tech innovation and demographic shifts: these long-term megatrends are reshaping EM economies.
China
Transitioning from a resource-driven model to a higher value-added and sustainable growth model, based on:
Renewable technologies
Digitisation and cloud adoption
Localisation
In many industries, China is at an early stage of digitisation and cloud adoption.
China is a world leader in solar and energy storage tech. This gives it huge economies of scale as these industries grow.
Rising geopolitical tensions means critical technologies are more localised - presenting exciting investment opportunities in chip design, manufacturing and software.
Shaping the way
Favourable demographics
Digital infrastructure
Vibrant entrepreneurial culture
India
Growth prospects remain steady. We focus on established companies with market leadership and a history of value creation as opposed to new listings.
By 2050 India will be the country with the largest working age population in the world.1
India has a unique public digital infrastructure.
The digital identification system (Aadhaar) can be a catalyst for broader digital initiatives.
India is becoming the world’s fastest-growing startup ecosystem with 112 Unicorns- startups with a $1 billion valuation - as of March 2024. 2
Latin America
Declining interest rates are expected to improve growth prospects. Demographics and commodity resources are long term tailwinds.
Chile
Brazil
Mexico
Exports are also strong. Goods exports to China were up 62.3% in Q4 2023, compared to Q4 2019. 4
Domestic consumption is a powerful growth driver thanks to sizeable internal market. Commodities include iron ore, copper, nickel, sugar and soybeans.
It accounted for 30% of global lithium production in 2022. 5
Chile has a growing internal market and strong institutions.
Mexico recently surpassed China as the largest commercial partner of the US. 3
Mexico has positive demographics. The Free Trade Agreement with the US, and low cost workforce mean it can profit from nearshoring.
Autonomous driving
AI data centres
Edge computing/ the IoT
CLOUD IT INFRASTRUCTURE
DISRUPTING RECRUITMENT
The demand for memory to support data processing in real time, vehicle-to-vehicle communication, internet connection and other functions will only increase.
As billions of industrial Internet of Things devices connect to the cloud, areas such as factory automation, smart cities, healthcare and oil and gas will all boost demand.
AI data centres are extremely hungry for computing power. As data centres grow, demand for storage will increase exponentially.
Wiwynn is a leading cloud IT infrastructure provider for hyperscale data centres in the US, with unique liquid cooling technology. It is expanding into AI servers.
BOSS Zhipin – Disrupting China’s recruitment business with instant chats between bosses and job seekers, powered by AI algorithms.
Memory
Stock examples
Memory chips have driven new technologies from PCs in the 00s to smartphones and servers today. In the future they will be essential to huge growth areas.
The industry has consolidated massively to just three major conglomerates, two of which are EM-based: South Korea’s Samsung and SK Hynix.
Critical Commodities
Supply
demand for lithium
electric vehicles
wind pLANTS
LOW-CARBON ALUMINIUM
Critical minerals such as copper, lithium, nickel, aluminium and cobalt are essential components in clean energy technologies, from wind turbines and electricity networks to EVs.
20%
Much of the world’s supply of critical minerals is located in emerging countries.
by 2040. 6
The IEA predicts demand for lithium could grow by over
40x
the mineral inputs of a conventional car.
A typical EV requires
6x
more mineral resources than a similarly sized gas-fired plant.
An offshore wind plant requires
13x
Press Metal is a Malaysian low-carbon aluminium producer and 80% of the power used in its smelting
process comes from a large hydropower plant in Sarawak on the island of Borneo. As a result, the power is low cost (even compared to Chinese peers) and secured on a long-term contract that runs until the mid-2030s, meaning that the company is a beneficiary of the soaring energy costs that have affected various coal and gas-powered global competitors.
Critical minerals such as copper, lithium, nickel, aluminium and cobalt are essential components in clean energy technologies, from wind turbines and electricity networks to EVs.
Electric cars account for
of total car sales in 2023. 7
8
The number of passenger EVs on the road globally is expected to rise from 27 million at the end of 2022 to over 100 million by 2026.
China is an EV superpower, with the largest EV manufacturer in the world BYD and the world’s largest EV consumer market. Future growth will be driven by...
China is an EV superpower, with the world’s largest consumer market and EV manufacturer, BYD. South Korea's LG Energy Solutions is a leading battery manufacturer, whose products are likely to remain at the heart of the EV revolution.
BYD is the largest EV producer globally, with a 16% global market share.9 BYD has plants in Japan, the US, Hungary and Brazil, and is constructing or planning plants in Thailand and France.
EVs are expected to reach 52% of total passenger vehicle sales in China, compared to 42% in Europe. 8
Electric Vehicles
18%
an EV superpower
Growing global presence
Rising EV penetration
Find out more
Over the long term the structural picture in EM is set to change enormously. Taking advantage
of these macro shifts will take depth of knowledge and a range of approaches. See how Federated Hermes' range of emerging markets solutions provides the flexibility to invest in EM.
1: Economic Times 2050: India to have the largest working age population 2: Startup Talky: Top Unicorn startups India
3: Deloitte: Mexico economic outlook, 2023
4: Deloitte: Brazil economic outlook February 2024
5: Reuters: Chile plans to nationalize its vast lithium industry April 2023
6: IEA: Critical Minerals
7: IEA Global EV Outlook 2023
8: BloombergNEF 2023 Electric Vehicle Outlook
9: Bloomberg, as at 31 December 2023
This information does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments.
For professional investors only. The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Investments in emerging markets tend to be more volatile than those in mature markets and the value of an investment can move sharply down or up.
Issued and approved by Hermes Investment Management Limited (“HIML”) which is authorised and regulated by the Financial Conduct Authority. Registered address: Sixth Floor, 150 Cheapside, London EC2V 6ET.
Emerging Markets:
What’s driving change?
Growth might be slowing over the medium term, but the long-term drivers remain intact.
Decarbonisation, tech innovation and demographic shifts: these long-term megatrends are reshaping EM economies.
China
Transitioning from a resource-driven model to a higher value-added and sustainable growth model, based on:
Renewable technologies
Digitisation and cloud adoption
Localisation
In many industries, China is at an early stage of digitisation and cloud adoption.
China is a world leader in solar and energy storage tech. This gives it huge economies of scale as these industries grow.
Rising geopolitical tensions means critical technologies are more localised - presenting exciting investment opportunities in chip design, manufacturing and software.
Shaping the way
Favourable demographics
Digital infrastructure
Vibrant entrepreneurial culture
India
Growth prospects remain steady. We focus on established companies with market leadership and a history of value creation as opposed to new listings.
By 2050 India will be the country with the largest working age population in the world.1
India has a unique public digital infrastructure.
The digital identification system (Aadhaar) can be a catalyst for broader digital initiatives.
India is becoming the world’s fastest-growing startup ecosystem with 112 Unicorns- startups with a $1 billion valuation - as of March 2024. 2
Latin America
Declining interest rates are expected to improve growth prospects. Demographics and commodity resources are long term tailwinds.
Exports are also strong. Goods exports to China were up 62.3% in Q4 2023, compared to Q4 2019. 4
Domestic consumption is a powerful growth driver thanks to sizeable internal market. Commodities include iron ore, copper, nickel, sugar and soybeans.
It accounted for 30% of global lithium production in 2022. 5
Chile has a growing internal market and strong institutions.
Mexico recently surpassed China as the largest commercial partner of the US. 3
Mexico has positive demographics. The Free Trade Agreement with the US, and low cost workforce mean it can profit from nearshoring.
Autonomous driving
AI data centres
Edge computing/ the IoT
CLOUD IT INFRASTRUCTURE
DISRUPTING RECRUITMENT
The demand for memory to support data processing in real time, vehicle-to-vehicle communication, internet connection and other functions will only increase.
As billions of industrial Internet of Things devices connect to the cloud, areas such as factory automation, smart cities, healthcare and oil and gas will all boost demand.
AI data centres are extremely hungry for computing power. As data centres grow, demand for storage will increase exponentially.
Wiwynn is a leading cloud IT infrastructure provider for hyperscale data centres in the US, with unique liquid cooling technology. It is expanding into AI servers.
BOSS Zhipin – Disrupting China’s recruitment business with instant chats between bosses and job seekers, powered by AI algorithms.
Memory
Stock examples
Memory chips have driven new technologies from PCs in the 00s to smartphones and servers today. In the future they will be essential to huge growth areas.
The industry has consolidated massively to just three major conglomerates, two of which are EM-based: South Korea’s Samsung and SK Hynix.
Key themes
Critical Commodities
Supply
demand for lithium
electric vehicles
wind pLANTS
LOW-CARBON ALUMINIUM
Critical minerals such as copper, lithium, nickel, aluminium and cobalt are essential components in clean energy technologies, from wind turbines and electricity networks to EVs.
20%
Much of the world’s supply of critical minerals is located in emerging countries.
by 2040. 6
The IEA predicts demand for lithium could grow by over
40x
the mineral inputs of a conventional car.
A typical EV requires
6x
more mineral resources than a similarly sized gas-fired plant.
An offshore wind plant requires
13x
Press Metal is a Malaysian low-carbon aluminium producer and 80% of the power used in its smelting process comes from a large hydropower plant in Sarawak on the island of Borneo. As a result, the power is low cost (even compared to Chinese peers) and secured on a long-term contract that runs until the mid-2030s, meaning that the company is a beneficiary of the soaring energy costs that have affected various coal and gas-powered global competitors.
Critical minerals such as copper, lithium, nickel, aluminium and cobalt are essential components in clean energy technologies, from wind turbines and electricity networks to EVs.
Electric cars account for
of total car sales in 2023. 7
8
The number of passenger EVs on the road globally is expected to rise from 27 million at the end of 2022 to over 100 million by 2026.
China is an EV superpower, with the largest EV manufacturer in the world BYD and the world’s largest EV consumer market. Future growth will be driven by...
China is an EV superpower, with the world’s largest consumer market and EV manufacturer, BYD. South Korea's LG Energy Solutions is a leading battery manufacturer, whose products are likely to remain at the heart of the EV revolution.
BYD is the largest EV producer globally, with a 16% global market share.9 BYD has plants in Japan, the US, Hungary and Brazil, and is constructing or planning plants in Thailand and France.
EVs are expected to reach 52% of total passenger vehicle sales in China, compared to 42% in Europe. 8
Electric Vehicles
18%
an EV superpower
Growing global presence
Rising EV penetration
Find out more
Over the long term the structural picture in EM is set to change enormously. Taking advantage
of these macro shifts will take depth of knowledge and a range of approaches. See how Federated Hermes' range of emerging markets solutions provides the flexibility to invest in EM.
1: Economic Times 2050: India to have the largest working age population 2: Startup Talky: Top Unicorn startups India
3: Deloitte: Mexico economic outlook, 2023
4: Deloitte: Brazil economic outlook February 2024
5: Reuters: Chile plans to nationalize its vast lithium industry April 2023
6: IEA: Critical Minerals
7: IEA Global EV Outlook 2023
8: BloombergNEF 2023 Electric Vehicle Outlook
9: Bloomberg, as at 31 December 2023
This information does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments.
For professional investors only. The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Investments in emerging markets tend to be more volatile than those in mature markets and the value of an investment can move sharply down or up.
Issued and approved by Hermes Investment Management Limited (“HIML”) which is authorised and regulated by the Financial Conduct Authority. Registered address: Sixth Floor, 150 Cheapside, London EC2V 6ET.
