China and India may dominate the headlines but emerging markets boast a plethora of opportunities elsewhere, many of which are ignored or under-appreciated. Guinness Global Investors’ emerging markets team is particularly bullish about Indonesia, Mexico and Vietnam, all of which are beneficiaries of the near-shoring trends resulting from US-China tensions.
Mexico
Mexico is the US’ largest trading partner for both imports and exports, and the country is becoming an industrial hub, according to Guinness’ head of Asia and emerging markets, Edmund Harriss.
“You could think of Mexico as an industrial hinterland just as Eastern Europe has been for Germany and the Pearl River Delta for Hong Kong,” he said.
“The infrastructure is there, supplies are in close proximity. It's a very attractive place to do business.”
China sees Mexico as a “backdoor” into the US, according to analyst Valerie Huang. “The US/China trade has fallen significantly since tariffs have been introduced, but this has been offset by an increasing share from Mexico, among other countries,” she said.
“In 2023, Mexico had record Chinese foreign direct investment and at the same time, it overtook China as the biggest exporter to the US.”
A lot of this dynamic pans out in the solar and electric vehicle sectors, with a record new $3.5bn invested by Chinese automotive companies into Mexico.
But China is not the only one doing this. Global car manufacturers such Audi, BMW, General Motors, Ford and Nissan are all looking to Mexico for cheaper labour and access to the US, the top car importer worldwide.
This year, Guinness has added Arca Continental to its portfolios – one of the world’s top Coca Cola bottling companies and the second-largest in Latin America, said portfolio manager Mark Hammonds.
“As well as benefiting from higher incomes, Arca Continental is also the beneficiary of improved infrastructure spending over time. The better infrastructure, the more efficient the distribution and delivery,” he said.
Vietnam
Vietnamese imports into the US have doubled and the same happened from China into Vietnam.
Several international businesses are trying to gain access to Vietnam and its cheap labour. DHL plans to invest €350m over the next five years into building a Southeast Asia logistics business in Vietnam, Huang noted.
Other examples include Shenzhou International, which Guinness holds in some of its portfolios. The company is a knitwear garment manufacturer whose clients include Uniqlo, Nike, Adidas and Target.
“Historically, production has been in China, but costs there have become more expensive, so it expanded into Vietnam. Vietnamese labour is roughly half the cost now of what it is in China,” she said.
The Taiwanese have also entered Vietnam looking for cheaper labour and more cultural alignment than they might find elsewhere.
“Taiwan Semiconductors (TSMC) is building a plant in Arizona and delays are emerging because of the cultural difference in the approach to work, but also a lack of advanced knowledge needed from the local communities,” Huang explained.
“Experts moving from Taiwan into the States are creating even more tensions in those local areas. This is one reasons why they are more likely to go to countries where they share some of the values and it's easier to work with the local communities.”
As an example, South Korea is the source of 78% of foreign direct investment into Vietnam. Samsung is Vietnam's largest direct investor and also its largest exporter, worth $56bn last year.
Indonesia
Indonesia is benefitting from another mega-trend: greater consumption in emerging markets. The middle class has grown; in 2005, 68% of households earned less than $1,500, but by 2022 that had fallen to 19%.
“It's clear that the spending behaviour is changing,” said Hammonds, who is investing in consumer staples such as Unilever and Unilever Indonesia, one of the largest fast-moving consumer goods companies (FMCG) in Indonesia. “It has a top-three share within many of the product ranges in its key categories, with some of the brands including, Pepsodent and Vaseline.”
Consumption is also accelerating thanks to a boom in online advertising led by social media.
“One of the things Unilever had to handle was moving a lot of the advertising expenditure away from the traditional out-of-home billboards onto social media, as Indonesia is the second-largest user of TikTok in the world,” he explained.
“It’s an interesting market and if we continue to see strong GDP growth, then we could be potentially looking at repeating the first part of this millennia, when we saw FMCG companies grow at double-digit rates.”