Growth Opportunities Are Bubbling Up in Hard-Hit Emerging Markets

Investors’ retreat across the globe has made it easier to identify opportunities in India, Brazil, and other developing markets, argues Baillie Gifford’s Andrew Keiller.

Illustration by II

Illustration by II

Emerging market stocks have fallen far behind their global developed counterparts in the past few years.

But growth investor Baillie Gifford believes the asset class remains appealing as rising innovations, attractively priced stocks, and favorable macroeconomic conditions bubble up in less developed economies.

“Quite frankly, emerging markets has disappointed everybody over the last decade,” Andrew Keiller, emerging market specialist at Baillie Gifford, told II in an interview. “The key question is, why will the next decade be any better?” The answer, at least in part, is that there are “genuinely great growth companies” in emerging markets that have expanded beyond China and East Asia, according to the manager.

The Edinburgh-based firm had a tough 2022. Its assets declined by more than $120 billion last year, mostly due to the decline in valuations of stocks in its funds, including Tesla and Alibaba. The firm was hurt by the downdraft in the technology sector worldwide. Baillie Gifford’s Emerging Markets Equities Fund lost 26.5 percent in 2022, significantly underperforming the MSCI EM Index, which declined 19.4 percent during the same period. Despite the recent decline, the manager has a solid long-term track record. The firm’s emerging markets fund had an annualized 10-year return of 3.6 percent, compared to 1.8 percent for MSCI’s EM index. The annualized return for the firm’s Long Term Global Growth Fund, one of its flagship funds, is 11.8 percent since its inception in 2014, compared to 6.6 percent for MSCI’s World index.

Baillie Gifford believes innovation has been rising over the past decade in developing countries — a trend that may lead to a regime shift in the next few years. Take India, for example. Companies lagged their global peers in digital as individuals in many parts of the country lacked good internet access. But the country’s telecommunications infrastructure has been significantly expanded. “That’s changed remarkably in the last five years or so,” Keiller said, adding that the amount of data that an average person in India consumes in a month is now nearly twice as much as the global average. “For stock pickers over the next five to ten years, that will be very important and likely lead to interesting investment ideas,” he said.

Countries in Latin America also present good investment opportunities. In Brazil, the government has been proactive in responding to high inflation. “It raised interest rates very quickly from around 2 percent at the lows to around 14 percent today,” Keiller said. As a result, inflation in Brazil has been cut roughly in half since April of last year, making it better positioned to battle macroeconomic headwinds than many developed economies.


In addition, investors’ retreat across the globe has made it easier to identify growth opportunities in emerging markets. “In an environment where capital is more scarce, stock picking matters more,” Keiller said. “If your job is to identify companies with strong competitive advantages [and] pick the most resilient companies, this type of environment should be a big one.”