Invesco Canada blog

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Jeff Feng | May 1, 2017

Old EM vs. new EM

For many investors, the category emerging markets (EM) brings to mind a few key characteristics that I now associate with the “old EM”, which in my experience differs dramatically from the current reality in many emerging-market countries – what I refer to as the “new EM”. What has changed?

Commodities – no longer the only game in town

EM often conjures images of coal-coated factories and the oil fields of the commodity-producing countries of the 1970s and ’80s. In the last 20 to 30 years, the world has changed and this is clearly reflected in the development of some of the larger emerging-market countries such as China, India, and to a lesser degree, Brazil.

These economies are no longer dominated by commodity prices. We have seen a huge uptick in middle-class economic growth. When incomes pass a certain threshold, spending habits grow to include things like education, entertainment, health care and higher-end consumer goods. This trend in consumer spending has certainly helped grow those segments in these economies.

Brazil, which has had its share of political and economic hiccups in the last few years, has still made a lot of progress in the last couple of decades. Similarly, Southeast Asian countries like Indonesia are able to better diversify their economies and prosper without being dominated by commodity-price fluctuations.

Demographic shift

A decade ago, I would have argued that the population of many EM countries was simply too young for the consumer-spending shift. In some countries, Vietnam for example, the average age sat somewhere below 30. At that age, in any country, people don’t tend to have enough money for spending beyond the basics. But, as time goes by, that average age increases and, all else being equal, the portion of the population with spending power increases. We are now seeing this happen in a number of EM countries.


The last thing is globalization. Over time, we’ve seen countries climb the ladder in terms of where they are in the value chain. In today’s markets, they are able to compete on more than simply cheap, abundant labour. The workforce in many EM countries – China, India, etc. – can now compete on both technology and quality of production. South Korea, for example, now boasts some large-scale companies that are competitive in world markets. Twenty years ago, this was not the case.

Final thoughts

Is the shift from old to new EM complete? No, some of those older beliefs are still evident and true, but overall I believe that continuing to define EM economies based on the old EM characteristics deprives investors of a deeper understanding the new, emerging reality in many parts of the world.


For more information on funds managed by Jeff:

Trimark International Companies Fund

Trimark Emerging Markets Class

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Jeff Feng is the Head of Emerging-Markets Equities for Invesco Hong Kong Ltd. Invesco Canada has entered into a sub-advisory agreement with IHKL to manage certain Trimark funds.

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