Emerging markets provide access to countries that are becoming more industrialised, technologically advanced and financially developed. Their equity markets are large and liquid enough to form part of major global indices, but they still represent a relatively small share of worldwide stock market value.
Emerging economies are responsible for a significant proportion of global economic growth and now occupy central positions in industries including semiconductors, artificial intelligence hardware, vehicles, renewable energy and critical commodities. China, India, Korea and Taiwan are particularly important to technology supply chains, while other developing countries supply the materials needed for expanding electricity networks and the energy transition.
These markets also benefit from domestic growth. Rising incomes, expanding access to credit and the development of local consumer markets can create sustained demand for financial services, technology, transport and other products.
Emerging markets are not a single, uniform asset class. Each country has its own political system, economic structure, natural resources, financial position and level of institutional development. This creates clear risks, but it also produces wide differences in company quality, valuations and growth prospects. Currency movements, geopolitical tensions, regulation and weaker governance can affect returns. However, some traditional vulnerabilities have reduced. Fiscal positions have strengthened in parts of the emerging world, current-account balances have improved and foreign-exchange reserves have increased. Corporate transparency has also developed, giving shareholders more information with which to assess businesses.
Fidelity Emerging Markets aims to use these differences rather than simply follow a broad market index. It has a flexible mandate that allows it to search across countries, sectors and company sizes. The focus is on businesses with strong competitive positions, capable management teams and healthy balance sheets that can benefit from structural or cyclical growth.
The investment company also looks beyond the largest and most widely researched shares. Smaller and medium-sized companies often receive less analyst coverage, which can leave their prospects misunderstood or their shares incorrectly valued. Fidelity’s research network is intended to identify these gaps by examining companies, competitors, suppliers and local market conditions.
Fidelity Emerging Markets Limited (LON:FEML) is an investment trust that aims to achieve long-term capital growth from an actively managed portfolio made up primarily of securities and financial instruments providing exposure to emerging markets companies, both listed and unlisted.
