Emerging markets: Views from the experts
1. Our view is that the increased regulatory scrutiny in China’s internet sector is focused on creating conditions conducive to long-term sustainable growth for all stakeholders – rather than curbing the development of the technology sector. Chinese technology companies contribute to a significant proportion of economic growth and employment in the economy and play a pivotal role in the Chinese government’s technological goals. Therefore, our view is given the government’s plan to use innovation as a driver of gross domestic product (GDP) growth and productivity gains in the long term, the intention is not to curtail innovation and innovative businesses. Rather, the objective is to avoid monopolistic positions that could have negative effects without the appropriate controls. China’s ambitious roadmap includes tapping into a formidable resource not every other country has—a vast population that can drive demand, and a history filled with rapid adoption of modern technology.
2. We believe that economic growth drivers in China will largely stem from domestic consumption, innovation and technology and a commitment to the environment, with targets for the country to reach peak carbon emissions by 2030 and achieve carbon neutrality by 2060. The plan’s manufacturing upgrade will also prompt companies to create supply chain self-sufficiency as China moves up the value chain, as a result of accelerated adoption of local technology and digitalisation. Hence, we believe that there will be beneficiaries of China’s effort to re-balance wealth distribution as the other aspects of the common dual circulation policy that focuses on carbon neutrality, technology localisation and consumer premiumisation (made possible with rising incomes) could create attractive investment opportunities.
3. Inflation has elevated around the world as supply bottlenecks, shipping disruptions and recovering demand have been driving up prices. Higher commodity prices and base effects have also been lifting headline inflation. While we expect this situation to be transitory and look for inflation to moderate in 2022, heightened prices and post lockdown booms have forced some emerging market (EM) central banks to act. South Korea, Brazil, Mexico, Russia and parts of Central and Eastern Europe have already started tightening, but others across the world are willing to wait. We believe that investors should not be too worried about the upward move in inflation across much of EMs, but rather view it as an expected part of economic normalisation post the Covid-19 crisis.