12th June 2013
F&C is arguing that a strategy of investing in high quality companies is even more appropriate for emerging markets than developed ones and illustrated its view with three outstanding examples.
Jeff Chowdhry, Head of Emerging Market Equities at F&C says: “We would argue that the strategy is even more appropriate for emerging markets than developed markets. For example, many emerging economies have fast-growing consumer markets and developing infrastructure needs that will provide an attractive backdrop for high quality companies to grow their businesses at exceptional rates over the long-term which will result in superior shareholder returns. Furthermore, the inherent lower volatility in these earnings streams should mitigate some of the additional risk associated with emerging market investing.”
Chowdhry argues that the strategy is illustrated by the three following examples from India, Brazil and South Korea.
· Ultrapar: A Brazilian gas distribution business which benefits from increased vehicle penetration in Brazil, is taking share from the informal market and the business is resilient during economic downturns. Increased scale has translated into growing margins and improving profitability whilst the balance sheet is healthy. Over the past 10 years, this investment has generated a total shareholder return of 30% p.a.
· LG Household & Healthcare: A consumer products company in South Korea, with leading positions in household goods, beverages and cosmetics. They have a proven ability to profitably grow the business by introducing new products and acquiring underperforming businesses that they subsequently turn around. Over the past 10 years, this investment has generated a total shareholder return of 35% p.a.