India is the world’s leading vaccine manufacturer and will produce many of the low-cost (non-mRNA) vaccines needed for the developing world. Moreover, as digitization rapidly increases both domestically and internationally in 2022 and beyond, India’s deep technology talent market may be a major beneficiary.
Furthermore, India is poised to benefit from other significant long-term structural tailwinds such as demographics, labor shifting away from agriculture into higher productivity sectors, urbanization, an aspirational and entrepreneurial population, and low household debt. Finally, significant reforms such as the Goods and Services Tax and the new bankruptcy code—alongside an unprecedented focus on economic reform and privatization initiated in the Modi government’s 2021 National Budget—have begun to bolster its economy.
“Momentous changes have taken place in India over the past 12 months that I believe have helped to fast-track the country’s nascent growth story. It’s now clear that Indian Prime Minister Narendra Modi is going all out to spur an economic renaissance.” – Niraj Bhagwat, Equity Portfolio Manager
India’s private markets may also signal its promising future. Estimates range from 40 to 100+ unicorns (private companies with >US $1 billion valuations) that are beginning to IPO.1 As this listing trend continues, US $250 billion or more of new market cap may be created.1 These companies may further diversify the public markets and offer attractive opportunities to public-market investors.
Thematic Opportunities
Across the diverse range of countries within EMs, many of our investors are finding attractive opportunities for the year ahead within a common set of thematic areas.
“For instance, the impacts of smart data and the growing access to quality healthcare are among the long-term opportunities we find attractive in EMs in 2022.” – Dáire Dunne, CFA, Portfolio Manager
Smart Data: As EMs continue their transition away from manufacturing economies to service/digital economies, they increasingly look to unlock productivity gains from enterprise intelligence. This trend has seen software spending steadily increase, following a similar path to developed markets (DM), but from a much lower base. In China, for example, public-cloud spending was only 11% of the US equivalent in 2020.2 Notably, the growth of cloud computing is driving greater affordability and availability of software solutions and, when combined with rising labor costs and more data to process, is accelerating this structural shift. In our view, software spending across the stack—in things such as Enterprise Resource Planning and cybersecurity—has a long runway for growth across EMs in 2022 and beyond.
Healthcare Inclusion: The vast majority of the world’s population lives in developing economies and most still have inadequate access to healthcare. Healthcare spending across low- and middle-income countries was only US $264 per capita in 2018, compared with US $5,665 in high-income countries—a difference of more than 20 times. However, between 2000 and 2018, spending grew almost twice as fast in low- and middle-income countries relative to high-income countries.3 This was driven in part by an increasing government policy focus on supporting investment in public health. In addition, medical-research spending is rapidly accelerating, particularly in China. We believe these factors make healthcare inclusion a significant long-term thematic opportunity.
Other broad areas of interest for EM investors in 2022 include the deepening of financial markets (driving inclusion and supporting development), digital connectivity (e.g., the growth of e-commerce and online leisure), and environmental consciousness (a rising focus in a world of climate change).
Bottom Line
Looking to 2022, in our view, EM offers equity investors high growth potential and significantly lower valuations than DM. For long-term investors that are willing to use volatility as an opportunity, we see a range of investment opportunities within the diverse EM universe.