1. Although environmental, social and governance best practices in China have been improving, China generally lags developed markets in this area. Chinese companies operate according to local norms and requirements from local regulators, but we have found many are doing more than what is required in numerous areas. Many companies already have very robust reporting, where investors can see exactly how sustainability fits in their overall strategy, and how the company and management teams take account of ESG risks. While China’s capital market has opened up and the barriers are coming down for international investors, Chinese regulators are set to improve ESG reporting processes further through mandatory disclosures for listed companies by the end of 2021. We believe these steps will pave the way for Chinese companies to truly be in line with their Western counterparts.

2. A second wave of Covid-19 infections in India led to the implementation of new restrictions including lockdowns (at a regional state level rather than nationwide) to contain the outbreak. While this second wave is expected to impact the country’s economic recovery in the short term, we expect the economy to bounce back as the government accelerates its vaccine rollout and lockdowns are lifted. In the longer-term, we expect India’s economic recovery to continue as economic activity gradually improves. The overarching drivers underpinning the Indian market also include low interest rates, high liquidity and fiscal incentives, all of which currently remain intact. However, we are mindful of the risks, including the ongoing virus pandemic, regional and global geopolitical relations and the path of the recovery and infection rates in other regions globally.

3. The Covid-19 pandemic has accelerated the evolution of globally leading emerging market companies. Taiwanese and South Korean semiconductor firms dominate the global industry with their strong manufacturing capabilities, allowing them to ramp up investments and widen their competitive advantages amid booming demand for chips from high-performance computing, automobile and other businesses. In China, biotechnology firms are developing innovative treatments for cancer and other major diseases and have won the confidence of global pharmaceutical groups in licensing these new drugs. India’s internet space also offers huge potential, in our view. Taken together, evidence of EM companies scaling the value chain has increased, and we see durable growth characteristics in many of these firms.

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