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The overlooked opportunities in emerging markets
Nestled in emerging Europe, the Middle East, and Africa are plenty of companies that should give investors something to be excited about, says Adnan El-Araby, from the Barings Emerging EMEA Opportunities Trust.
Investors looking for opportunities in emerging markets should look beyond the big Asian players in regions like Taiwan, China and South Korea.
That’s according to Adnan El-Araby, lead manager of the Barings Emerging EMEA Opportunities Trust (BEMO), which has been heavily investing in Eastern European, Middle Eastern and African securities markets, on the latest MoneyWeek Talkspodcast, which can also be watched on YouTube.
Speaking to editor-in-chief Andrew Van Sickle, El-Araby highlighted how a significant amount of the MSCI emerging markets index is made up of countries in the East.
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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Taiwan and South Korea, both heavily involved in the artificial intelligence (AI) sector, make up around 50% of the index, with China and India comprising another 30% between them.
However, investing solely in these regions could mean you’re missing opportunities for above-benchmark returns in Europe, the Middle East and Africa (EMEA).
El-Araby said: “We felt that our shareholders and the investors in the trust can essentially capture a lot more alpha across the entire region of EMEA.
“When people speak about emerging markets, emerging markets is effectively Asia, right? So it’s 80% of the [MSCI] benchmark…so the other regions in emerging markets sometimes get left behind or become almost too small.”
Why it’s worth investing in emerging Europe
While Europe has gone through plenty of change in recent years, with Russia’s invasion of Ukraine and the coronavirus pandemic both destabilising elements, there are still opportunities for investors.
“A remarkable example would be Poland," Al-Araby said. "It’s amazing what you can have when you have the human capital, the entrepreneurial spirit, low corruption and a government which is quasi-okay.
“And what they’ve managed to evolve and develop and deliver…the economy’s effectively at a developed market standard.”
Greece is another market worth exploring, Al-Araby said, where the government takes a hands-off approach to innovation.
Hungary too, which is emerging from 16 years of rule under right-wing populist prime minister Viktor Orbán and whose new leadership is more pro-European.
“Hungary now has a real opportunity. It’s almost at those early stages of where Poland was several years ago.
“If the politics do move in the right direction, if even half of what the new government is looking to implement is genuinely implemented, then you’re going to see innovation, you’re going to see ambition come to the forefront and really capitalise on some of those opportunities.”
How Africa and the Middle East can offer something different
Further afield, and Africa and the Middle East also look interesting.
South Africa is the biggest country holding in the BEMO Trust, taking up 30%, with Saudi Arabia at 23% and the United Arab Emirates (UAE) at 12%.
The Government of National Unity in South Africa, appointed in 2024, has “delivered some economic growth”, said Al-Araby, with retail bank Capitec one institution capitalising on a significant proportion of the population without bank accounts.
“You want to be invested in companies like that, where they’re moving away from the easy or the well-trodden path and can really see the opportunity across a very large country,” Al-Araby said.
There are also opportunities across healthcare, renewable energy and tourism sectors for investors in the Middle East, namely Saudi Arabia and the UAE, despite tensions in the region.
Al-Araby said: “The real dividend is twofold. One is the change in the mindset of the region and one that is where you have to proactively find a way to live with your neighbours, you have to find a way to work with each other.
“Two, I think the real economic dividend will be the large investments in infrastructure across the entire region…you’re going to be investing in defence.
“And you’re going to be investing in drone technology, and you’re going to be investing in data centres.”
About the podcast
MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick, Andrew Van Sickle and Cris Sholto Heaton are joined by influential guests – from CEOs and entrepreneurs to economists and fund managers – to share their top tips on managing money, investing wisely and building wealth.
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