Transcript:

We do see we’re at something of a turning point in emerging markets.

Between about 2010 [and] 2015, it was a really tough environment for EM. We saw commodity prices falling. We saw weak exports. And we saw a lot of overcapacity in industrial areas. So those things meant that the earnings were really under pressure.

But [in] the last year and a half, all those things are changing. Commodity prices have stabilized, or they’re turning around. Global exports have come back. And some of those overcapacity issues are actually getting resolved through reforms in countries like China.

If you look at the growth numbers, we’re seeing China actually being able to control and slightly increase their growth rate. And if you add inflation, if you look at nominal growth in China, growth’s actually increasing in China. And that’s helping earnings growth also to be very strong in the last 12 months.

We think the concern about a trade war is somewhat overplayed. If you look at what the rhetoric is coming out of the US, there’s a lot of focus on industries like autos or steel, which are very important politically here in the US.

But when you look from China’s perspective, steel for example, is not amongst the top 20 export categories from China to the US. What matters much more is technology. The number-one export item from China to the US is mobile phones and associated personal electronics. And you don’t hear much talk about trade barriers or trade tariffs in that category. So we think it’s much more likely that you’re gonna see some very selective categories come under pressure. But the main business between China and America might actually be pretty much untouched.

I think it’s definitely true that the US remains a very important trading partner for a lot of these economies. But other economies—for example, within emerging markets—are growing quite rapidly. So that export markets are becoming more diversified. So there’s less dependence on the US.

But I would say also it’s not just about exports. I think people do also associate emerging markets with exports, but the whole domestic side is very important, and more stable. Because the exports go through these big swings. So when we look for ideas, there needs to be downside protection, exports can be attractive, but they also tend to bring higher volatility. It’s often safer looking for some domestic consumption story, which is a little less exposed to those cycles.