Invest in emerging markets with the highest ESG rating

27/08/2021 – 19:38

Emerging markets have not been able to keep up with developed ones in the last 10 years, and the behavior of the stock exchanges of the main developing markets, the BRICS (Brazil, Russia, India, China and South Africa), have not been able to achieve the returns that have been obtained with the US stock market, which has appreciated 253% in this period in the case of the S&P 500, the index with the largest capitalization in the world.

And it’s not just the BRICs that have lagged behind since 2011: the MSCI World stock index is up 141% since that year. In the same period, the MSCI EM, which includes shares of emerging countries, it has barely rebounded 8.7%.

Thus, the decade that has followed the financial crisis has not been a good one for these markets. However, nothing is forever, and at some point the equities of these countries should achieve a better performance than developed stock markets.

For some of the largest analysis houses in the world that moment has already arrived., coinciding with the end of the Covid 19 pandemic, and the upturn in inflation that is taking place, something that, due to its relationship with the rises in raw materials, is related to the better prospects for these countries, large producers of basic resources.

Goldman Sachs is one of the firms that has already made public its good prospects for emerging markets. This same week he stressed that he is “optimistic” with the values ​​of developing markets, and favor the park and the currencies of Brazil, Mexico and Russia, since they consider that “the return to normality is not priced.”

Bank of America also agrees, highlighting how there is an acceleration in capital flows to emerging countries in recent months, and he expects that “this trend will continue, taking into account the macro trends that are being formed and the valuations of equities”, they explain in this investment bank.

The flows have been focused on the energy sector, according to the American bank, and now they believe that the materials sector and also the financial sector could follow.

The process of tightening the regulation that is being carried out by China makes Goldman skeptical with the investment in this country in the short term, since they consider that there is the possibility that there will be “an additional fall of around 20% for the variable income of the country “.

Nevertheless, consider that the rest of the emerging countries will not be affected by Beijing’s regulatory efforts: “These concerns are unlikely to spread to the rest of emerging markets,” they explain.

Sustainable emerging funds

The emerging universe is not the most conducive to sustainable investment. There are many ESG fund managers, who place great importance on sustainability aspects, who highlight the difficulties encountered when one enters this world and intends to invest with this approach. However, there are mutual funds that invest in emerging and have a good sustainability rating for Morningstar, and also leave good returns a los partcipes.

If mutual funds that invest in emerging markets globally are selected (not focused exclusively on one country or region), and have the best Morningstar sustainability score (5 globes), the fund that has achieved the best results in the last decade is Nordea 1 – Emerging Stars Equity BP EUR. The Finnish manager’s vehicle, with a net worth of more than 5,000 million euros, achieves almost 11.8% annualized profitability in the last decade.

After him, the most profitable fund in this period has been Stewart Inv Glbl Em Mkts Sust VI EUR Acc, from First Sentier Investors, a product that achieves an annualized 10.54% in the last 10 years. JPM Emerging Markets Equity I (acc) EUR, from the manager of the US bank JP Morgan, is the next most profitable fund, with 10.28% annualized in the decade, followed by AB Emerging Markets Gr I Acc, from AllianceBernstein, with 8.41% in the same period. In fifth place appears Jupiter Global EMs Focus L EUR Acc, with 8.27% annualized.

The sixth most profitable fund on the list has a Spanish label. Its about Emerging Engineers Fund A FI, from Caja Ingenieros Gestin, with Didac Prez at the controls, a vehicle that achieved 7.8% annualized profitability in the decade.

Except for the First Sentier fund (the second most profitable of the six), in the first five positions of the rest of the products there are some companies that are recurrently repeated. In all of them the same company is found as the most important position from the portfolio at this time: Taiwan Semiconductor Manufacturing, the largest producer of semiconductor chips in the world, which produces more than half of these types of components that are sold to third parties around the world.

This is a sector that has been very profitable in recent years, with a return of more than 320% in the last decade for the Philadelphia Semiconductor Index of manufacturers.

In addition to the chipmaker, Another firm that appears recurrently in most of these portfolios is Tencent Holdings, also in the top 5 positions in all funds except First Sentier. The fall of almost 20% that the firm accumulates in 2021, and the losses of 2% that the MSCI EM Index signs have not prevented these funds from maintaining good results this year, from the 11.8% achieved by the Stewart Inv Glbl Em Mkts Sust VI EUR Acc, up to 2.56% achieved by the JP Morgan fund.

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