With an investment universe of over 1,300 companies across 24 starkly different economies, selectivity is crucial, writes John Citron
Investors are drawn to emerging markets by the promise of rapid economic growth, rising consumer wealth, and dynamic companies. Yet in reality, the opportunity is far more complex.
The MSCI Emerging Markets index covers over 1,300 companies across 24 countries, reflecting a vast and diverse asset class. These companies range from global technology leaders to small domestic firms operating in niche industries.
And the region's two most dominant markets – India and China – are starkly different.
India’s stock market has been soaring, driven by strong economic expansion and investor enthusiasm, but some of its best-performing stocks are now priced at extreme valuations.
Meanwhile, China’s economy is slowing, consumer confidence is weaker, and regulatory uncertainty is weighing on certain sectors.
This divergence illustrates why taking a one-size-fits-all approach to emerging markets is ineffective. Each economy has distinct drivers and risks that must be carefully evaluated, while individual companies are navigating unique dynamics.
Separating the wheat from the chaff
The real challenge in emerging markets is identifying companies with durable competitive advantages. Some of the most promising opportunities can be found in industries experiencing rapid transformation, such as digital banking in Brazil, sustainable industry in India and AI infrastructure in Taiwan.
Opportunities glimmer in Latin America’s financial sector, which is undergoing a digital transformation as fintech leaders like Nubank* reshape the landscape. Nubank, a digital-first bank based in Brazil, is one of the largest fintechs in the world and has transformed access to financial services across the region.
By leveraging artificial intelligence, Nubank can offer seamless banking experiences, from AI-powered credit scoring to automated customer service, allowing it to scale rapidly while maintaining a high level of customer trust. With millions of previously unbanked consumers now part of the formal financial system, Nubank exemplifies how technological disruption can drive long-term growth in emerging markets.
Emerging markets also provide some opportunities in the evolution of industrials. Praj Industries* is an engineering company at the smaller end of the market with a strong position in biofuels production.
At the intersection of green energy and industrial innovation, this company offers both strong growth prospects and a compelling sustainable narrative.
Originally focused on ethanol production, the company is now pioneering sustainable aviation fuel derived from agricultural waste, which could play a critical role in reducing carbon emissions while also providing farmers with additional income streams. With profits growing at over 20% annually, Praj1 illustrates how investing beyond the well-known large-cap names can uncover companies poised for long-term success.
A key area of structural growth in emerging markets is the expansion of AI infrastructure. Taiwan’s Delta Electronics, a global leader in power supplies and cooling systems, is at the forefront of this trend.
With a significant market share in this niche, Delta Electronics* plays a vital role in ensuring efficient power utilisation and thermal management for AI data centres—both critical for large-scale data operations.
As the demand for AI-powered services accelerates, the need for sustainable and energy-efficient solutions is becoming more pressing. Delta’s dominant market position and exposure to this long-term growth driver make it a compelling investment.
The importance of selectivity
Emerging markets remain one of the most intriguing investment opportunities, but they require careful navigation.
While China and India capture much of the spotlight, other markets—from Mexico to Indonesia—offer compelling investment prospects.
Instead of chasing economic growth stories, investors should focus on stock selection and risk management.
By taking an active approach, emerging market investors can identify the strongest companies across different geographies, while managing risk through expert stock selection.