Welcome to the Morningstar series, "Ask the Expert." I'm Holly Black. With me is Wim-Hein
Pals. He is Head of Emerging Markets Equity at Robeco. Hello.
Good morning. So, we're talking about the outlook for emerging
markets this year. There's a lot going on at the moment. What are your top line thoughts
on the region? Well, the region is looking good from a growth
angle. So, we had some headwinds last year with the US-China trade issues. That's been
resolved. And that's a major breakthrough early part of this year. Now, of course, we
are in the midst of the coronavirus issue, which is another setback, and it's going to
be a bit of a delay of the recovery but not a derail of the recovery coming through. So,
with the last data, we're pointing towards a global economic acceleration from a GDP
perspective not only in developed but also in emerging markets, and in a positive growth
environment, a bit of an acceleration, not huge, but a bit of an acceleration is good
for EM in general. And you see positive signs in a lot of large emerging countries ranging
from China, to India, Brazil, Russia, where you see the GDP growth accelerating, and also
earnings per share accelerating, EPS growth, and that's more important for us as equity
investors in emerging markets, obviously. So, what are some of the most interesting
themes and drivers you see? We hear a lot about increasing wealth and young demographics
helping these economies. Yeah, that is a very important point that
you are pointing to. The acceleration in growth in the middle class, in the consumer is huge.
In India, there's going to be 100 million extra wealthy individuals, wealthy consumers
at the end of 2023 compared to today. So, that is a huge acceleration. And that's only
India. And you have Indonesia where you have 300 million odd people going to a higher level
of education and wealth at the same time, which comes with a lot of growth, the environment
for the right stocks. And I think a big theme for investors this
year is climate change and investing in a sustainable and responsible way. And a lot
of people might be concerned that that might be harder to do in emerging markets. We have
these, sort of, images of poor governance or non-environmentally friendly stocks. How
do you find that? Well, we've been very active on the ESG front
since 2001 actually. So, over almost 20 years, we have been looking at ESG, particularly
on the governance. We started at governance. The governance angle in emerging countries
was famous of lousy compared to the developed world and they are catching up very, very
fast. Depending on the country, of course, but some countries are catching up very fast.
To give you an example – Korea, they paid out 10 – only 10 years ago, they paid out
10% of their earnings as a dividend to shareholders. Now, it tripled. Now, they're paying 30%.
Today, it's more the E and S are gaining in importance, I have to say, particularly the
environmental – as you pointed out, the environmental issue is crucial. So, we are
looking at environmentally friendly sectors much more than we did 10 years ago. And there
is a huge earnings growth to be found in some of these companies. In the battery segment,
for instance, there's huge growth. All the major automobile producers are looking to
electrify their platform and their cars and that comes with a lot of demand for batteries
going forward. And there's a lot of emerging companies that deliver those batteries.
Super. Well, thank you so much for your time. You're very welcome.