Produced in partnership with Robeco.

For a generation of institutional investors, emerging markets (EM) meant one thing: a monolithic growth bet correlated to the same macro cycle. Jan de Bruijn, client portfolio manager for Robeco’s emerging markets team, thinks that framing is now obsolete.

“It’s evolved very significantly,” de Bruijn told Investment Magazine. “Investors are beginning to see EM as more of a mosaic; in other words, there’s optionality there. When you’re looking at different countries in EM, it’s pretty clear they’re not all the same.”

Now, in an increasingly multipolar world, investors are catching on to the fact that in the emerging markets they can buy a “portfolio of geopolitical options” de Bruijn said. Mexico is an option on North American nearshoring; Vietnam and India are options on supply chain diversification; Brazil and Indonesia are options on resources like oil, as well as food security. And many of those countries are working hard to balance their relationships with the world’s two superpowers.

“Vietnam obviously benefits from its proximity to China and its role in the Asia supply chains, but also benefits from companies and governments supporting alternatives to China as a big beneficiary of the China + 1 strategy,” de Bruijn said.

“Betting both ways can become difficult to manager, because when geopolitical pressure increases – which I’m sure it will do over the next 10-15 years – countries may be forced to choose sides. But for now, countries that can maintain relationships with different blocks are very attractive, and is often the source of the actual option value.” 

But while many EM countries are peaceful and politically stable, they can also get caught up in conflicts they didn’t start – the case with the Gulf States, which are very attractive investment destinations located close to sources of geopolitical instability. But proximity to risk alone doesn’t make a region uninvestable, de Bruijn said.

“It’s just part of the cost of doing business. It comes down to being active – understanding what you’re being compensated for, whether that country has buffers like fiscal strength, forex reserves, sovereign wealth. This is the trade-off you often get in EM; you rarely get perfect stability and high opportunity in the same package. It’s really about whether the balance of risk and reward is attractive, and given the valuations that are EM are trading at, we certainly think so at the moment.”

And the themes powering EM higher are both durable and structural, intrinsically linked to the AI super-cycle still powering the developed markets higher and higher.

“If you want to get invested in the world’s future growth engines, there are different parts of EM that provide you that exposure,” de Bruijn said. “The technology story was previously all about the software, and had a lot of focus on US names. What we’ve seen in the last two years, and certainly this year, is that the hardware is really important too.

“Who makes the hardware? That happens to be emerging Asia, particularly Korea and Taiwan. For new renewables and hardware, we need mineral resources like lithium. Where’s that? China, Latin America and Indonesia.”

Jan de Bruijn is a client portfolio manager in the emerging markets equities team at Robeco. Discover emerging opportunities now