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Insights from EM Analyst Conference

January 27, 2010 Leave a comment Go to comments
With Dennis in Sri Lanka

With Dennis in Sri Lanka

A key component of the Templeton Emerging Markets Team’s investment process is peer review and evaluation. We held our semi-annual group conference last week in Cebu, Philippines. Aside from our weekly review meetings over the phone, this is one of the two times a year when the entire Templeton Emerging Markets investment research team gathers together in the same place to discuss portfolio-related themes, and to assess and evaluate our resources and internal efficiencies. As mentioned, peer review and evaluation is one of the main things we focus during our global gathering.  

I’ve asked two of our most experienced and long standing portfolio managers to contribute their thoughts for the next two blogs. Dennis Lim and Tom Wu are both pioneers with the group and started our two largest research offices in Singapore and Hong Kong, respectively.  

By Dennis Lim in Cebu, Philippines

I am an avid scuba diver and I go to Cebu and other parts of the Visayas quite regularly for diving. I like Cebu because of its natural beauty and the very friendly local people. Unlike Singapore where I am based, the lifestyle is very laidback and things do not change much from one year to the next. Hence, it is easy to find my way around the city, relying on the very colorful public transportation.   

During our conference last week, we discussed about the two ‘C’s – Consumers and Commodities, the key investment themes in emerging markets. We believe that the consumer story in China is starting to play out nicely and that there is further upside from focusing on this area. Aside from China, let’s not forget about India, which has another billion plus people with disposable income rising at a steady pace.  

Commodities is another area that we believe will continue to do well. Given the mismatch between long-term supply and demand, we believe that commodities prices will continue to rise in the long run, albeit with significant market volatility.  

One of the issues that came up during the conference was the impact of BRIC countries, namely the rise of Brazil, Russia, India and China, on the current global geopolitical and economic paradigm.  

In general, forecasters believe that China is expected to see GDP growth of close to 10% this year while India is expected to register growth of about 8%.[1] We think that Brazil’s economy continues to go from strength to strength and Russia is starting to rebound strongly from the crisis. In comparison, the G7 economies are expected to grow only 1.3% in 2010. [2] Furthermore, reports indicate that China’s GDP is closing in on the US$ 5 trillion mark while the United States GDP is currently about US$ 14 trillion.[3] In four decades, China’s economy could be as big, if not bigger, than the United States. China’s voice on the global stage is growing louder by the day. The same can be said about the other BRIC countries. This is getting more evident at recent G20 and other global summits.  

Protectionism continues to be a potential risk in China and other BRIC countries, where the United States and other markets might introduce economic policy that could potentially restrain foreign trade. This is a risk not only for emerging markets but also for broader global markets.  

The good news is that countries in emerging markets, starting with China, have tried their best to grow their domestic markets, although it takes time. Most of the emerging economies tend not to have a pension system, a free education system or a free retirement system, that means that citizens need to save, which is why the saving rates are high in these countries and less available for discretionary spending. However, as the per capita income moves up, the environment is gradually changing.  

You have probably read in the media about the ongoing debate on the possible addition of Indonesia to the BRIC family. We have been investing in Indonesia for close to two decades and know that market well. Indonesia’s political and economic outlook has improved tremendously in recent years, so clearly, it would not look out of place beside the BRIC countries.  


[1] Source: Consensus Economics, as of Jan 7, 2010.  

[2] Source: Consensus Economics, as of Jan 7, 2010.  

[3] Source: IMF, WEO, October 2009.

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