Another important trend to note is urbanisation. With millions migrating to cities across the emerging markets, infrastructure spending is likely to be a major driver of secular growth.
Our long-term growth outlook for emerging markets remains favourable, notwithstanding the inevitable short-term challenges we will meet along the way. However, in many instances, it may be better to play that growth dynamic through developed market exposure and companies that export products to emerging markets to take advantage of growth and consumption in those areas, rather than investing in emerging markets directly.
There is, nevertheless, a tremendous opportunity for governance improvements to make emerging markets more resilient to financial downturns, whilst enhancing the efficiency of their stock markets. Authorities have recognised the importance of good corporate governance to attract investment flows, spearheading reforms that aim to tackle the risks associated with ownership by founders and governments, poor disclosure, and weak protection mechanisms for minority shareholders. At the same time, governance is improving, particularly in Asia, to a large extent in response to companies’ increasing appetite to engage with, and learn from, investors.