Growth Matters
2020-01-08 23:32

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As we see it, one of the biggest advantages emerging markets have offered investors is a strong growth story: Over the past decade, growth in emerging markets has outpaced growth in developed markets by more than double. Growth in gross domestic product (GDP) looks like it will continue to outperform that of developed markets for at least the next five years, according to estimates by the International Monetary Fund.1 We are often asked why economic growth and stock market performance don't always directly correlate in a given year, and if that's the case, does a nation's GDP growth matter at all when it comes to investing in equities? While it's true that growth and stock market performance can be divergent at times, there is no question that growth matters since company earnings depend on general economic growth.


If you look at the breakdown of growth in emerging versus developed markets, you can see emerging markets have grown faster than developed markets for many years. In general, strong growth rates are regarded as a key characteristic of emerging markets. In the past 20 years, there was only one year, 1998, when growth in emerging markets lagged developed markets.2



Demographic Advantages


Markets in emerging Asia as well as frontier markets in Africa have been growing even faster than the overall average for emerging markets over the past few years, and we expect that trend should continue this year. Rapid advances in technology have helped fuel the growth spurt, as emerging and frontier markets can take advantage of technological advancements while leapfrogging over the development phase; for example, bypassing bank branches and trading floors for electronic transactions. We also think a major reason for this growth  is tied to demographic trends. Younger age groups generally dominate populations in emerging nations in Asia and Africa, in contrast to many parts of the developed world and even more established emerging markets such as China, which are experiencing aging populations. For example, the median age in Malaysia is 28 years and in Kenya, 19 years, while the median age in China is 37, and in Japan and Germany it is 46.3 People under the age of 40 are typically entering the most productive years of their lives; they are actively earning income and starting families. In the process, they are buying a variety of products, from consumer goods to vehicles to homes.


Case Study: Argentina


Economic growth on a year-by-year basis may not necessarily result in high stock market performance, but over time improving growth should be reflected in corporate earnings. However, that still begs the question of why a country's stock market can often move out of sync with growth trends. Argentina is an interesting case study. Despite undeniable economic malaise, Argentina's stock market was one of the best performers globally in 2014, and the Merval Index is up more than 30% year-to-date in 2015.4


If you look at the various economic indicators in Argentina, you find a cocktail of bad news. GDP growth was barely positive in 2014 and is expected to decline in 2015, while inflation (as measured by consumer prices) is expected to increase more than 18% in 2015.5 The government's fiscal accounts have been deteriorating, and it has been pursuing interventionist policies: currency controls, capital controls, and import and export controls. As a foreign investor, you'll find pretty much everything you don't want in Argentina! Meanwhile, the stock market has been doing well. According to our team in the region, part of the reason is because wealthy individuals in Argentina who want to preserve their assets in the country are flocking to stocks, property and gold, viewed as among the most convenient and liquid investments.


Additionally, hope for change in Argentina has also likely been contributing to positive stock market performance. Many investors are putting their hopes on political change when the country's general election takes place in October of this year. Argentine stocks were cheap relative to peers in Latin America a few years ago, but given the recent move, that's not generally the case anymore. Remember—the market tends to be forward-thinking, so that's where you see a mismatch with economic statistics, which are backward-looking. We will be watching the election closely for potential opportunities to increase our exposure there.


When I was investing in Argentina in the early 1990s, inflation was running at some 1,000%, and it was very difficult to make earnings projections for companies. I had to make investment decisions on different criteria; I'd look at the price-to-book ratio instead of price-to-earnings, for example. People said I was crazy—but sometimes you have to adjust your value orientation when there are distortions in an economy. Looking at the book value of companies enabled us to purchase company assets at what we viewed to be discounted prices, since the stock market was so depressed.

20世纪90年代初投资阿根廷时,通胀高达1000%,很难对企业盈利作出预测。我必须利用不同的标准作出决策;例如,我考察的是市账率而不是市盈率。当时大家觉得很疯狂—— 但是当经济出现扭曲时,必须调整我们的价值导向。考察企业的市账率,使得我们可以按照我们视为存在折让的价格购买公司资产,因为当时的股市过低。

Around this time, I had met with the president of a prominent Latin American newspaper and broadcasting conglomerate. This independent group was very brave in opposing Argentina's government. The government came down hard on it, even restricting the supply of newsprint for its newspaper. After studying the situation and talking with management, I thought the company would ultimately survive, so I felt comfortable investing in it. It's a case where, after you have done your investigations on the management and have confidence in them, you should take a long-term perspective on the situation to get past a difficult period.


Investment Themes


Of course, we have also found a number of markets where geopolitical or other events have frightened investors and caused short-term stock market selloffs, while GDP growth continued at a good clip. Since we still believe growth matters, the challenge for us is how to take advantage of growth trends when making investments. In many cases, we focus on the banking sector because those stocks tend to be the entities that generally reflect the health of an economy. The other area of interest to us is consumer goods—mass-market products like beer, soft drinks, snacks, instant noodles, and the like. These are the kinds of items consumers buy at an increasing pace in emerging and frontier markets when they have extra cash to spend. A couple of years ago, we visited a soft-drink bottler in Nigeria and asked them who their biggest competitor was. Usually you know the answer—it would be a rival soft-drink company. However, in this case, the answer was additional time for cell phones, which may seem surprising but really makes sense when you think about it. Consumers in many of these markets have limited money to spend, so companies are competing for a certain price ticket. A consumer may have to choose between buying a soft drink or time to talk on the phone.

当然,我们有很多市场因为地缘政治或其他事件而令投资者恐慌,导致短期的市场抛售,但与此同时,GDP增长持续理想。由于我们仍然认为增长起着举足轻重的作用,我们的挑战是如何在投资时利用增长趋势。在很多情况下,我们专注于银行板块,因为这些股票所代表企业反应的是经济的健康程度。另一个值得关注的领域是消费品—— 大众市场产品,如啤酒、软饮料、零食和方便面等等。在新兴市场和前沿市场,当消费者拥有额外的现金可供支出时,购买这些产品的数量日益增加。很多年前,我们访问了尼日利亚软饮料生产商,询问谁是他们最大的竞争对手。通常大家会认为是作为竞争对手的软饮料公司。但这一次的答案出乎意料,是手机通话时间的增加,但仔细思索却的确如此。这些市场的消费者能够作出的支出有限,所以企业竞争的是某一价格下的市场。消费者可能在购买软饮料或者聊电话之间作出选择。

So, we have found that companies in the consumer or retail space with a high market share can benefit from rising consumption and GDP per capita. These investments are particularly attractive if profit margins can be improved. We also see areas in the building industry, such as cement, as having a more direct relationship with GDP growth than some other types of companies. Of course, even in a fast-growing economy there will be losers as well as winners, so we need to identify those companies we believe are capable of benefiting from the economic growth.


Comments, opinions and analyses are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.


Important Legal Information


This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The companies and case studies shown herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton Investments.

本文只供一般性参考,不应被视为个人投资建议,或推荐投资者购买、出售、持有任何证券及采纳任何投资策略的建议或招揽,不构成法律或税务咨询。本文所列的公司和案例研究仅供说明;富兰克林邓普顿(Franklin Templeton)所建议的任何投资组合目前尚未确认是否存在投入。

The opinions are intended solely to provide insight into how securities are analyzed. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio. This is not a complete analysis of every material fact regarding any industry, security or investment and should not be viewed as an investment recommendation. This is intended to provide insight into the portfolio selection and research process. Factual statements are taken from sources considered reliable but have not been independently verified for completeness or accuracy. These opinions may not be relied upon as investment advice or as an offer for any particular security. Past performance does not guarantee future results.


The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market.


Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments opinions and analyses in the material is at the sole discretion of the user. Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own professional adviser or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

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What Are the Risks?


All investments involve risks, including the possible loss of principal. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets' smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.


To get insights from Franklin Templeton delivered to your inbox, subscribe to the Investment Adventures in Emerging Markets blog.

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The technology industry can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants as well as general economic conditions. The technology sector has historically been volatile due to the rapid pace of product change and development within the sector.




1. Source: International Monetary Fund Economic Outlook Database, April 2015. There is no assurance that any estimate or forecast will be realized.


2. Ibid.


3. Source: CIA, The World Factbook, 2014 estimate.

[3] 资料来源:中央情报局《The World Factbook》,2014年估计。

4. Source: Bloomberg, year-to-date through June 22, 2015. Indexes are unmanaged, and one cannot directly invest in an index. Past performance does not guarantee future results.


5. Source: International Monetary Fund World Economic Outlook Database, April 2015. There is no assurance any estimate or forecast will be realized.


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