{{r.fundCode}} {{r.fundName}} {{r.series}} {{r.assetClass}}

Welcome to the new RBC iShares digital experience.

Find all things ETFs here: investment strategies, products, insights and more.

About this podcast

Despite the turbulence of this year, emerging markets have performed in line with developed markets. Three countries - China, Korea, and Taiwan – lead the market, in part due to their efficacious response to the virus. Laurence Bensafi, Portfolio Manager & Deputy Head of Emerging Markets Equities, RBC Global Asset Management (UK) Limited, joins Dave for a closer look at these and other trends in emerging markets today. [6 minutes, 47 seconds] (Recorded November 5, 2020)


Hello and welcome to the Download. I’m your host, Dave Richardson, and I’m really excited to be joined today by Laurence Bensafi, who is a portfolio manager and head of Emerging Market Equities at RBC Global Asset Management in London. Laurence, welcome to the podcast.

Thank you, Dave.

So we had a chance to speak earlier today about emerging markets and how emerging markets have done through the pandemic. And I think a lot of people would be surprised — I know I was — to hear how well emerging markets have been doing and why. So maybe you could touch on that, Laurence? How the emerging markets have done and what’s the explanation for it?

Yes, sure. So, as you said, people are sometimes surprised to hear that emerging markets for the year have actually performed in line with the developed market, which is about flat for the year. Obviously, a big drop and big recovery in the second part of the year. So why is that? Because emerging markets are actually different to what they used to be only a few years ago. The top three countries in emerging markets are now China, Korea and Taiwan, and the three of them represent close to 70% of the index. A few years back, the biggest countries were Russia, Brazil, -- countries much more exposed to energy, materials. Way more volatile. Those three countries I mentioned — China, Korea, Taiwan — as obviously you know, have been in the news for the way they handled very well the pandemic. Obviously, China was the first one. The virus seems to come from China. We saw they were a bit crazy back in February when they locked down an entire city, Wuhan. Now, looking back, it was probably a very smart move. That helped them to really contain the pandemic. So for them, the pandemic hasn’t been really an issue for months and months. This is the same situation in Korea and Taiwan. In Taiwan, there are hardly any cases. In Korea, there are a few waves, but each wave with maybe 100 cases per day, so very, very small. And because of that, those countries have hardly locked down, and it means the economic growth in those countries has been actually quite strong. They’re actually going to be pretty much the only three countries in the world with positive economic growth, GDP growth this year. So that explains also what they’ve been doing well. The second very important point that people also don’t know necessarily is that those countries are full of COVID winners. And again, it’s a big change to what it used to be. China used to be again a country full of banks, state-owned banks, energy, telecoms. But those stocks have been completely overshadowed by the huge technology names that have emerged over the past few years. So, you know, the Tencent, the giant e-gaming company, Alibaba, obviously, the Amazon of China, JD.com which is another of those names. They now represent close to 20% of the emerging market indices, and China overall represents more than 40% of the index. In Taiwan and Korea, between 60 and 80% of the index is made up of tech companies because, in those countries, that’s where were made all the components for phones, computers, screens that we have all been buying in order to deal with the pandemic. So those companies have been doing extremely well in those countries, and they’ve been pushing the market. Those countries are up for the year by quite a large amount. And that really explains why emerging markets overall have been doing well, even though, as I said, some of the countries more exposed to energy and materials obviously have been weak. But it was more than offset by those three countries which have been really benefiting massively from the pandemic.

And Laurence, something else: we’re taping this podcast the morning of Thursday, November 5th, so the U.S. election is still very much in the air. A lot of investors and maybe some of the listeners here wouldn’t be aware of the important relationship between the performance of emerging market stocks, emerging market companies and emerging market countries relative to the strength or weakness of the US dollar. And you have some interesting comments or thoughts on that in terms of the outcome of the election and the direction of the U.S. dollar, regardless of the outcome of the U.S. election.

Yes, there is a very strong historical relationship between the dollar and the emerging market performance. A weak U.S. dollar is very good for emerging markets. And unfortunately for emerging markets, over the past few years, the dollar has been strong because we were in a difficult environment. We were at the end of the cycle. Investors were worried, and they poured a lot of money into the U.S. dollar. So that explains why over the past few years, the emerging markets have been lagging developed markets. Going forward and regardless of who’s going to win the election, we believe that the dollar is going to weaken. And the main reason is this; whatever the size of the stimulus is going to be — there’s a lot of discussion on how big the stimulus is going to be in the U.S., and actually globally in the coming years. Regardless of that, we have huge deficits already, fiscal deficits in the U.S. and that would lead to a weaker U.S. dollar, which is going to be positive for emerging markets. There is positive and negative for emerging markets regarding if it’s Biden or Trump who wins the election. They offset each other a little bit. But really the important point is going to be the direction of the dollar. And we think it can only go in one direction. I would say the difference is the timing. Maybe with Mr. Biden, his stimulus is going to come early and then the dollar will weaken straight away. Maybe with Mr. Trump, it’s going to take a bit longer and the dollar will be more on a depreciating trend a bit more slowly. But the end result for us is the same.

Excellent. Well, Laurence, thank you again for your time today. It’s great to catch up with you and all the best to you, your family and loved ones.

Thank you. The same for you in Canada.


Recorded November 5, 2020

RBC Global Asset Management is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management Inc., RBC Global Asset Management (U.S.) Inc., RBC Global Asset Management (UK) Limited, RBC Global Asset Management (Asia) Limited, and BlueBay Asset Management LLP, which are separate, but affiliated subsidiaries of RBC.

This report has been provided by RBC Global Asset Management Inc. (RBC GAM Inc.) for informational purposes as of the date noted only and may not be reproduced, distributed or published without the written consent of RBC GAM Inc. Additional information about RBC GAM Inc. may be found at www.rbcgam.com. This report is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. RBC GAM Inc. takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when provided. Past performance is no guarantee of future results. Interest rates, market conditions, tax rulings and other investment factors are subject to rapid change which may materially impact analysis that is included in this document. You should consult with your advisor before taking any action based upon the information contained in this document.

Any investment and economic outlook information contained in this report has been compiled by RBC GAM Inc. from various sources. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM Inc., its affiliates or any other person as to its accuracy, completeness or correctness. RBC GAM Inc. and its affiliates assume no responsibility for any errors or omissions.

All opinions and estimates contained in this report constitute RBC GAM Inc.'s judgment as of the indicated date of the information, are subject to change without notice and are provided in good faith but without legal responsibility. Interest rates and market conditions are subject to change. Return estimates are for illustrative purposes only and are not a prediction of returns. Actual returns may be higher or lower than those shown and may vary substantially over shorter time periods. It is not possible to invest directly in an unmanaged index.

A note on forward-looking statements:

This report may contain forward-looking statements about future performance, strategies or prospects, and possible future action. The words "may," "could," "should," "would," "suspect," "outlook," "believe," "plan," "anticipate," "estimate," "expect," "intend," "forecast," "objective" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance. Forward-looking statements involve inherent risks and uncertainties about general economic factors, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement. These factors include, but are not limited to, general economic, political and market factors in Canada, the United States and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological changes, changes in laws and regulations, judicial or regulatory judgments, legal proceedings and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. All opinions contained in forward-looking statements are subject to change without notice and are provided in good faith but without legal responsibility.

® / TM Trademark(s) of Royal Bank of Canada. Used under licence.

© RBC Global Asset Management Inc., 2020