Tap the promising growth in emerging markets

Each week, a professional investor tells us where he’d put his money. This week: Andrew Ness, portfolio manager at Templeton Emerging Markets Investment Trust.

Global stockmarkets began 2019 on a high note, driven by optimism that the US-China trade negotiations would end well and hopes for a prolonged pause in US interest-rate hikes. Emerging-market equities benefited from domestic currency strength and robust portfolio inflows to finish January ahead of their developed-market counterparts. The fact that Chinese GDP growth has eased attracted media attention, but its economy has nevertheless continued to grow at a robust rate of more than 6% a year, making the country one of the fastest-growing major economies in the world. Meanwhile, a shift towards innovation, technology and consumption as the country’s primary drivers of growth could make that growth more sustainable over the long term.

A market leader in semiconductors

Technology will continue to be a structural driver of global economic growth and emerging markets boast some of the world’s leaders in semiconductor manufacturing. Taiwan Semiconductor Manufacturing (Taiwan: 2330) is one of the world’s leading semiconductor makers and counts major technology companies among its clients. It has taken a lead over its competitors thanks to its innovative technology, and we believe it is well-positioned to benefit from rising silicon content in smartphones. It should also benefit from the rapid development of artificial intelligence, autonomous driving and the “internet of things”. Taiwan Semiconductor’s commitment to delivery of advanced technologies should ensure that it maintains its leadership position, thereby protecting its market share and supporting long-term earnings growth.

India’s fast-growing private banks

The Indian banking system is one of the fastest-growing banking systems in the world. Private-sector banks have a market share of around 30%, while state-owned banks make up the rest. India’s private-sector banks have demonstrated their competitiveness, and we expect them to grow faster and gain market share. ICICI Bank (Mumbai: ICICIBC) is one of the largest private-sector banks in India and is well-positioned to benefit from the country’s growing financial needs.

We favour the bank as it continues to build its strong retail franchise and extensive network. A turnaround in its corporate business could further drive sentiment towards its stock. With national elections coming up, Indian markets are expected to remain volatile in the interim. But in the longer term, the case for investing in India remains strong as its economic fundamentals remain intact.

Attractive returns from Russian oil

Lukoil (Moscow: LKOH) is one of Russia’s largest vertically-integrated energy companies, as well as one of the biggest globally, in terms of reserves, and is well-placed to benefit from the world’s growing energy demands. Lukoil is focused on organic upstream projects in Russia where it has competitive advantages. Although oil prices have fallen in recent months, Lukoil remains profitable and boasts a healthy balance sheet and strong free-cash-flow generation. Attractive returns from its new greenfield projects (on the Caspian Sea), due to tax incentives, could further drive returns.

The company’s progressive dividend policy and share-buyback programme also bode well for the stock.