Cash in on change in emerging markets

Each week, a professional investor tells us where he’d put his money. This week: Chetan Sehgal, Lead Portfolio Manager, Templeton Emerging Markets Investment Trust.
After a strong start to 2019, global and emerging-market equities have hit turbulence thanks to changing US Federal Reserve policy and ongoing US-China trade-related negotiations or tweets. Against this volatile backdrop we continue to search for companies with sustainable drivers of earnings growth that can withstand ongoing market uncertainty.

Domestically orientated businesses may be well positioned to benefit from structural demand drivers, such as the confluence of technology and consumption in e-commerce, or consumers’ need for financial services.
Seek out Korea’s top search engine
A structural shift likely to endure is the role of technology in driving global GDP growth, particularly within emerging markets. Naver (Seoul: 035420) is the leading online search engine in Korea and has been early to adapt to changing online advertisement-market dynamics. The company has integrated its search functionality with e-commerce and content to maintain its market leadership. It now handles around a fifth of e-commerce traffic in Korea.
Naver is also among the leading payment companies in both Korea (Naver Pay) and Japan (through its social-media subsidiary, Line). It is thus facilitating e-commerce growth as well as benefiting from it. Reflecting the success of this online ecosystem, Naver was ranked ninth on Forbes’ Most Innovative Companies list in 2018.
A boost for Brazil
The election of Jair Bolsonaro (pictured) as president of Brazil boosted hopes of economic reform and an improvement in the growth outlook. Private-sector banks stand to gain from a pick-up in the lending cycle, especially if they have adequately addressed non-performing loans. Banco Bradesco (NYSE: BBD) is one of Brazil’s largest financial conglomerates, providing a full range of banking and financial services.
The company is leveraged to the economic recovery, benefits from a concentrated banking sector and gains from an extensive retail-distribution network that provides exposure to household spending. Ongoing government-led reforms are also expected to unlock demand for corporate lending.
Roaring ahead in Russia
Russia has been a strongly-performing market in the last year despite macroeconomic and geopolitical risks. Sberbank (Moscow: SBER) is the largest bank in Russia and has been expanding its market share as the industry has consolidated.
Smaller competitors without access to the state deposit insurance system have fallen by the wayside as they have struggled to attract retail depositors. Sberbank has a strong focus on technology, dominating peer-to-peer transfers and card issuance, while its online mortgage app and e-commerce business are growing. An emphasis on reducing costs (by closing retail branches, for instance) is improving overall efficiency and margins.

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