Derrick Irwin, portfolio manager on the Berkeley Street Emerging Markets Equity team at Wells Fargo Asset Management discusses the expansion of growth in emerging markets.
Laurie King: I’m Laurie King, and you are listening to On the Trading Desk®.
Seeking expanding growth opportunities in emerging markets means understanding the catalysts for growth in emerging markets. Derrick Irwin, portfolio manager on the Berkeley Street Emerging Markets Equity team at Wells Fargo Asset Management explains what’s driving their optimism in the asset class.
Derrick, along with three other portfolio managers in the equity and fixed-income space, appeared in our 2018 Midyear Investment Insights video: Expand, Adjust, Adapt. This added insight from Derrick is the last in the four-part follow-up series to the video.
In this program, Derrick starts by adding context to the emerging markets opportunity.
Derrick Irwin: The state of emerging markets and the opportunity continues to be excellent. Just to put into broader context, emerging markets account for about 40% of global GDP. Yet, they account for 60% of global GDP growth. Which is a big difference, particularly when you consider they only account for about 14% of global market cap. So you begin to see the huge, long-term opportunity that’s still available to us.
Laurie: These data points that Derrick references have moved directionally since midyear 2018—but still remain within a point or so. Maybe more importantly, the structural and foundational drivers that supported expanding growth in emerging markets remain, and as such, so does Derrick’s optimism.
Derrick: Well, I think you’ve seen in over the last 10 to 15 years, a huge explosion in wealth in emerging markets, a reduction in poverty, and of course an improvement in infrastructure and technology across the whole emerging markets. So, the opportunity for more wealth generation and for continued consumer spending is really very strong.
Laurie: In China, the infrastructure story built cities and expanded the middle class, paving the way for growth in the consumer sector.
Derrick: Yeah, look, I think the Chinese consumer is probably one of the most exciting stories that we see anywhere. You talked about the infrastructure development and the growth of the middle class, and that’s fundamentally changed the consumer picture in emerging markets from one where a consumer was really focused on: what’s the cheapest product I can buy; what’s the most available product that I can that I can buy, locally—to now, where there’s a consumer that’s willing to spend a little money, has a little money in its pocket, and of course also has a smartphone in his pocket that allows almost any product to be delivered to his door very, very quickly. So that’s changed the whole consumer picture dramatically.
Laurie: Speaking of that smartphone—that investment in infrastructure includes technology, making many tech companies early innovators who can tap into China’s unique opportunity of scale.
Derrick: The technology opportunity in China is really incredible—almost more interesting that in the developed world. China really came of age during the Internet period and has a deep roster of really exciting, innovative, highly-competitive companies that we think have incredible long-term opportunities—[even if] just for scale. If we look at a video streaming service in the United States—they have 54 million paying customers. A similar video streaming service in China has 61 million. So it’s actually bigger in terms of numbers of subscribers, which really speaks to the scale of the opportunity in China.
Laurie: Outside China, Derrick and his team are expanding their hunt for growth in India. He explains what makes India one of the more interesting, longer-term growth stories in emerging markets.
Derrick: If you think about it, India is roughly the same population as China, yet the demographics are actually younger. If we look at the infrastructure and the technological development in India—If China is in the seventh inning, India is probably in the first or second inning of development. And we’ve also seen a number of reforms over the last year or two that I think, longer-term, can really open up the growth opportunity for India.
Laurie: Let’s wrap this episode up on that note and thank Derrick Irwin for his added insights. Learn more about his Berkeley Street Emerging Markets Equity team and their approach by visiting http://on.wf.com/6122EDM6G.
And while this episode marks the end of the mini-series featuring portfolio managers from our 2018 Midyear Insights, look for our 2019 Investment Insights video and report which will be coming soon. And after that—more episodes like these.
Until next time; I’m Laurie King, take care.