If you have read any emerging markets commentary over the last six months, the same words look back at you: artificial intelligence, semiconductors, concentration. A slim clutch of technology hardware companies now account for an ever-growing portion of the MSCI Emerging Markets Index.
However, as with many dominating market narratives, it can be easy to forget the bigger picture.
For example, according to global population forecasts, another half a billion people will be added to the world by 2035, taking us to just under nine billion. By 2050, that number is expected to rise to just shy of 10 billion.
That’s billions of consumers who want more of everything. A bigger home, a better phone or, for some, their first flight, first car or first grocery delivery. What’s more, over 80% of the next billion people entering the global middle class will live in Asia, and by 2030 Asia should account for well over half of global middle-class consumption.
All of that is to say, emerging markets has some of the largest and most durable demand stories on the planet, and they compound whether or not a new AI model is released in San Francisco or Shanghai next week.
So, we want to think about the structural shifts that are already underway or just starting, think about the countries that are changing and moving forward, and, most importantly, think about the companies that are driving all of it.
Where better to start than an economy that is targeting about 10% GDP growth (the fastest in the world), has retail sales running well ahead of the emerging markets average, credit that is growing at about 20% a year, and is putting through dramatic reforms not seen in 40 years?
While the market fixated on day-to-day movements of the PHLX Semiconductor Sector Index (SOX), we look at Vietnam, where tens of millions of Vietnamese are crossing into a different kind of daily life. Few things capture that crossing better than where a family buys its dinner.
Today, Vietnam has roughly 70 modern grocery stores for every million people, while close neighbours, Thailand and Singapore, have 300 and 500 respectively. Closing the gap to even the lower of the two implies a fourfold expansion in formal grocery, funded by a population growing richer every year.
Of course, migrating from a busy, bustling stall to a fully stocked shelf takes time, but over the long run, it’s a shift we believe will be hugely valuable. Companies such as Mobile World are well-positioned to capture the opportunity.
Having already won the trust of a newly connected population as the country's default electronics retailer, Mobile World is turning that same hard-won advantage (lower cost base, reliable delivery, a brand people believe in) onto the far bigger prize of the weekly grocery shop. The result is a business with a long runway, improving economics and the chance to become a scaled national champion in a category still early in its formalisation.
Sadly, some trends are harder to stomach than retail formalisation. Every year, the lives of approximately 1.2 million people are cut short as a result of a road traffic crash and millions more suffer non-fatal injuries. It’s not a nice thought but it is a problem that can hopefully be solved by new technology.
Having a machine that does not tire, does not drink, does not glance at its phone and does not drive erratically sounds pretty appealing. In China, it is estimated that robotaxis could handle about a tenth of customers’ roughly 70 million daily rides by 2030, which would mean something like half a million autonomous vehicles on the road in the next five years.
That is a large market in its own right, but the more interesting question for us is who is best placed to orchestrate it. We think Didi starts from an unusually strong position. About seven in ten ride-hailing journeys in China already happen on its platform, giving it the demand density, routing data, and city-by-city operating experience that would be extremely hard for rivals to recreate economically. Didi has spent the last 10 years incubating its autonomous driving business to take advantage of this shift.
Taking a step back, a wealthier and more mobile Asia wanting to move more, not less, is not obviously a world that needs less energy.
Which is why we found it striking that, last November, the International Energy Agency reinstated a scenario that it had originally shelved back in 2019. This scenario, rather than peaking at the end of this decade, sees oil demand climbing all the way to 2050, from about 100 million barrels a day today to some 113 million by mid-century. Another sign that the world will be consuming much more energy than many expect.
To be clear, this is one scenario among several and a contested one, but it is apparent that traditional energy will continue to play a role through the transition.
Which takes us to the Argentine desert. Here, the Vaca Muerta region has some of the most productive oil acreage on earth, with breakeven costs of $36 to $45 per barrel, lower than that of many US shale plays. Having met with the co-founder of Vista Energy, one of Argentina’s leading local independent oil companies, we were struck by a rare combination of a well-connected, experienced management team and highly productive assets in an already highly productive region.
Vista’s wells are about 20% above the basin average, and some 50% more productive than Permian peers. The wells it drilled between 2018 and 2024 have paid for themselves in under two years, and almost every operating metric is still improving as the asset base scales.
Put simply, if the world is going to need oil for another generation, we would rather own the barrels that are among the cheapest to produce, the quickest to pay back, and the least carbon-intensive to bring up.
So, what do a retailer, a ride-hailing platform and an oil company have in common? Alas, not a joke. Rather, none of them is represented in the MSCI Emerging Markets Index. Each company sits entirely off-benchmark for a variety of reasons that have nothing to do with their underlying fundamental strength or the opportunities presented to them.
As the index continues to focus on AI demand and semiconductors, it ultimately misses a pool of companies that are tapping into some of the most durable long-term structural trends. Perhaps a tad unglamorous, but most definitely underappreciated and materially mispriced.
Amy Leishman is investment specialist at Baillie Gifford. The views expressed above should not be taken as investment advice.