Media Release: What Investors Should Know About Emerging Markets in 2023 and Beyond

Cape Town, 28^th February 2023: “Emerging markets offer the potential for higher growth, especially as increasing portions of their populations move into the formal economy and consume a wider variety of goods and services,” said Kingsley Williams, Chief Investment Officer at Satrix, during the first IndexMore webinar of 2023. 

IndexMore is an educational collaboration between Satrix and BlackRock's iShares. Despite the compelling investment case that informs this emerging markets (EM) view, most of the audience admitted to skewing their offshore asset allocations towards developed market (DM) opportunities.

Natasha Sarkaria, Investment Strategist in the iShares EMEA Investment Strategy Team at BlackRock said there was “an increased conviction for EM equities over DM equities on a shortterm, tactical basis” having raised EM equities from neutral to ‘plus one’ for 2023, while developed market equities remained underweight. The macro factors in favour of EMs over the next 12 to 18 months include that EMs are nearing the end of their interest rate hiking cycles; the potential for a weaker US dollar during 2023; and China’s economic ‘restart’. Fund flow statistics from Q1 2023 suggest that global investors have cottoned on.

“We saw over US$7 billion flowing into EM-focused exchange-traded fund (ETFs) in January 2023,” said Tom Husmann, Equity and Commodity Product Specialist: iShares Equity Product Strategy at BlackRock. These funds were split evenly between broad-, regional- and country-specific ETF products. “Before COVID, the majority of investments were in broad emerging markets but following the pandemic, the Russia-Ukraine war and many other complications, investors are favouring granular investments with single country allocations,” he said. 

Husmann pointed out that country selection contributed up to 40% of the performance generated from EM equity exposure. “All the analysis supporting that country selection is perhaps the most efficient way to generate alpha within emerging equities,” agreed Ashish Lodh, Executive Director, Equity Solutions Research at MSCI. For example, comparable energy sector stocks from China and India would likely display “very different risk versus return characteristics” due to country effects, in comparison to same sector stocks from from two different countries in developed Europe. [LA1] The fast-paced conversation turned to which of the EM giants presented the best return prospects for South African investors. 

The demographics and social megatrend are particularly relevant to India, which expects up to 600 million people to relocate to cities by 2031, according to the Union Ministry of Housing and Urban Affairs, driving a range of infrastructure investments. “India is also referred to as a technology country [and] is currently home to 115 ‘unicorn’ [HT2] companies (firms with a market cap of US$1 billion or higher) in that sector,” Husmann said. 

The divergence of short- and long-term returns means that single-country allocations to China and India can serve as a form of diversification within an investor’s EM portfolio. “Local investors can choose from a wide range of Satrix ETFs to achieve cost-effective exposures to emerging markets without externalising their capital,” concluded Williams. ETFs make it easier than ever to achieve broad-based EM exposure or country-specific exposure to China or India.

About Satrix 

Satrix is the leading provider of index-tracking investment products and exchange-traded funds (ETFs) in South Africa, with over R160 billion* in assets under management invested in the range of ETFs, index-tracking unit trusts, life pooled and segregated portfolios that are specifically tailored for client-specific mandates or retail funds. 

It pioneered index investing in South Africa, launching the flagship Satrix 40 ETF as the first locally listed ETF in November 2000. The business services the institutional, intermediary, and individual investor markets. Satrix has proven expertise in risk management, portfolio analysis and index construction.

A core part of the Satrix purpose is to drive the democratisation of investments for all South Africans, where SatrixNOW, the no-minimum online investing platform, is a key enabler to providing access for South Africans to “Own the Market”.

Satrix holds the largest market share in the ETF industry in South Africa at nearly 32%^ and was the most successful raiser of new capital in 2022, at R3.3 billion^. Additionally, the multi-award-winning business has grown assets under management by 50% since the beginning of 2020, under some of the most challenging market conditions in history.   

Visit www.satrix.co.za

*Source: Satrix, December 2022
^Source: etfSA.co.za, December 2022

Disclosure

Satrix Investments (Pty) Ltd is an approved FSP in term of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision.

While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSP’s, its shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaims all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information. 

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