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Throughout the course of the pandemic, Canadian investors may have been heavily focused on the stock market activity closer to home. Yet, there is a lot to be said for how markets are doing abroad, particularly in emerging market economies. Philippe Langham, Head, RBC Emerging Markets Equity, RBC Global Asset Management (UK) Limited, joins Dave for an overview of the latest developments in emerging markets equities. (Recorded June 18, 2020)


Hello and welcome to the Download. I’m your host, Dave Richardson. And I’m really excited today to be joined by Phil Langham. Phil is the head of Emerging Markets Equities at RBC Global Asset Management and really a keen observer and long-time investor and expert around emerging markets. And when we’re watching the news here in Canada, we’re often focused on what’s happening in Canadian markets and we get that flow over the border in terms of a focus on U.S. markets. But in the background, things have been happening in emerging markets as well. And Phil, how would you say that the Covid-19 crisis has played out in emerging market equities from your perspective?

Yeah, great, thanks very much, Dave. Well, emerging markets as of now, the 18th of June, have fallen about 10 % in U.S. dollar terms, year to date. That contrasts with the fall of around about 6 % in U.S. dollar terms for global markets. But this aggregate performance masks some very significant divergences within the asset class. It also masks the fact that at the lows, emerging markets were down over 30 %. Now, some markets, such as China or Taiwan, were actually up over a year and are trading in terms of valuation above long-term averages, while others such as Brazil and India have almost halved in U.S. dollar terms. Now, this reflects the reality of most of the emerging market universe, and in particular, East Asia has handled the pandemic very well, instigating early lockdowns and aggressive testing while some other parts of the emerging market universe, either due to a poor government response or, in the case of India, because a very high population density, have really struggled to get the virus under control. Now, as was the case with developed markets, we saw the emerging market universe bottom in mid-March. But unlike developed markets, the valuation at which emerging markets bottomed was at a price to book of around 1,35 times. That’s the low point, which has only been reached in previous crises in emerging markets. The divergence in performance has been just as stark at the sector level, we’ve areas such as healthcare and I.T. actually in positive territory while more cyclical areas such as financials and energy have really suffered. Looking ahead, we would say it’s difficult to predict how the Covid-19 situation will develop and how much economic damage there will be. But certainly one lesson that we’ve learned from previous crises is that markets tend to overreact to shorter term news and underreact to the longer term implications. In particular, we believe that the pandemic will accelerate some existing trends, such as online migration, I.T. infrastructure, as well as a focus on health and wellness. With this in mind, our approach has been really to focus on assessing the longer term implications of the pandemic and how these may impact our investment themes. Overall, we believe that most trends will likely revert back to normal, but that some existing trends will be accelerated. In particular, we think that our digitalisation theme will get a boost from the pandemic on the back of increased technological adoption and connectivity, which we think could become permanent. We certainly saw similar trends post SARS outbreak in China in the early 2000s. We also think that our health and wellness and infrastructure themes will be net beneficiaries. While in the near term the pandemic is certainly creating a challenging macro backdrop, which will lead to job losses and declines in income levels across emerging markets, we still think that many of the structural drivers behind emerging markets remain intact, including favourable demographics, the continued rise of the emerging market, middle class urbanization trends and under-leverage consumer and technological advancements.

So, Phil, that’s a tremendous recap of what’s going on and a look towards the future. You are one of the best in the world in terms of expertise in this area. There are so many ways I’d like to go with a follow up question, but we’re trying to keep this particular podcast short, so hopefully we can get you back on. Phil is joining us from London England today. Phil, thank you very much for your time and that great synopsis.

Great. Thank you very much. Anytime. David.


Recorded June 18, 2020

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