Three emerging markets stocks for sustainable growth

published 23 October 2023

In emerging markets, the alignment of societal and environmental development with robust financial growth offers attractive investments. Companies across diverse sectors, from electric vehicles to education and finance, are delivering valuable services while offering solid investment opportunities.

Three notable examples vividly highlight this encouraging trend.

The first is Samsung SDI (Seoul: 006400) in South Korea, a front-runner in the electric vehicle battery sector, reflecting a promising mixture of positive impact and financial growth.

The firm is a key beneficiary of the burgeoning demand for electric vehicles, propelling a vital global shift toward sustainable transportation. It is a battery supplier to key global carmakers such as BMW, Volkswagen, Audi and Volvo. The group’s estimated compound annual revenue growth rate between 2019 and 2024 is expected to be around 19%. Its superior technology and favourable valuation (the stock is on just nine times forward earnings before interest, taxes, depreciation and amortisation – Ebitda) relative to other leading battery manufacturers (such as LG Energy Solution at 16 times forward Ebitda) adds to its investment appeal.

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We believe private higher and vocational education have a role to play, primarily in emerging markets where limited public funds are best spent on primary education. Affordable higher and vocational education by private companies both play an important part in reducing income disparities and reducing the burden on public finances. Laureate is well-positioned to reap the benefits of US efforts to “nearshore” manufacturing.

The company’s prospective collaborations with corporations aim to bolster Mexico’s skilled workforce, aligning economic growth with societal advancement. Laureate’s solid free cash flow, robust balance sheet and attractive dividend yield of around 5% further underscore its investment appeal, all the while contributing to the vital task of developing education and skills in regions that crave educational advancement and an increasingly skilled workforce.

Shriram Finance (Mumbai: SHRIRAMFIN) is a compelling investment opportunity in India’s financial arena. Specialising in commercial-vehicle financing, the company facilitates economic activity by enabling essential vehicle acquisitions for small businesses, filling an important gap in the market where traditional banks have not been active.

Active for more than 40 years, Shriram Finance has established longstanding relationships with its clients. The company says that 70%–85% of the vehicles sold work either directly or indirectly in agriculture, most of them being used to transport food across the country. The firm generates a good return on equity (a key gauge of profitability) of 15%, and is one of the more attractively valued financial entities in India, trading on a price/earnings ratio of only 12 – stock valuations are generally high in India compared with other emerging markets.

Disclaimer

This material is not intended as an offer or invitation to purchase or sell any investment.

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Eli Koen is a portfolio manager at Union Bancaire Privée (UBP) and co-manages the UBAM Positive Impact Emerging Equity fund. Based in London, Eli joined UBP in 2010. Previously, he was co-head of Emerging Europe Equities at Fortis Investments. Prior to fund management, Eli was a research analyst in emerging markets at Goldman Sachs and Lehman Brothers in London and Finansbank in Istanbul. He holds an MA in International Economics and Finance from Brandeis University, Waltham, MA and a BA in Economics from Bogazici University, Istanbul.