Emerging Markets | Federated Hermes Limited (2024)

A range of long-term tailwinds support emerging markets (EMs). They include a demographic advantage over the West, manufacturing capabilities, resource advantages, digitisation and a focus on developing infrastructure.

With our broad EM offering, covering emerging and frontier markets, large and small caps, fixed income and Asia specialisation, Federated Hermes has the experience, the know-how and the connections to meet an array of investor requirements and help them capitalise on this vast and growing trend.

EMs account for 82% of the world’s population but currently only 24% of global market capitalisation.

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• Developed markets
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Source: Bloomberg, latest available as of January 2024. Growth figures are between 2017 and 2023 and are illustrative of countries within emerging and developed markets.

Four key attributes of emerging markets

• The growth differential between emerging and developed markets is likely to widen in favour of emerging countries on the back of positive demographics, limited supply side constraints, industrialisation, resource advantage, on-going reforms and infrastructure development.

• Historically, EMs’ reserves of commodities mean they tend to outperform in periods of above-trend inflation. This is particularly relevant with current geopolitical pressures driving demand for energy-related commodities and green metals.

• Many EM governments have addressed the challenge of inflation more effectively than their developed market peers. Many emerging countries have become more resilient against its effects, meaning more fiscal room to boost their economies.

• EMs continue to trade at a valuation discount considerably larger than the historical average. In emerging market debt, vulnerability to a strong dollar is being addressed by a transition from dollar-denominated to local currency debt.

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Whether you’re interested in broad exposure to emerging markets or want to focus on a particular aspect of the emerging market opportunity, our product range provides the flexibility to invest in EM with a range of preferences in mind.

Why Federated Hermes?

Federated Hermes has been actively investing in emerging markets for more than two decades.
Our understanding of EMs is reflected in our approach to managing risk, capturing value and engaging effectively with companies to maximise the potential long-term returns for our clients.

• While emerging markets offer a high degree of opportunity, we recognise that this is often accompanied by a higher level of associated risk. When making investment decisions, we carefully factor in market-specific issues such as geopolitical tensions, political stability, and regulatory structures, as well as more temporary concerns such as China’s Covid policy or the issues in its property market.

• Emerging market assets tend to trade at a discount, but even so not everything in EM is cheap, or even good value. We conduct thorough bottom-up fundamental analysis of potential assets before deciding whether they are of interest for our portfolios. At the same time, we determine a target price at which the asset represents a good investment.

• We engage widely across emerging markets, addressing a range of environmental, social, and governance (ESG) issues. We believe this level of active engagement reduces risk and improves the potential for stronger returns from the companies we invest in.