Emerging markets have seen rapid evolution over the past few decades with many emerging economies boasting cutting-edge companies, which have become industry leaders.
The new reality in emerging markets is characterised by increased institutional resilience, improved economic diversification and the emergence of world-leading emerging market companies.
Here we look at three companies that are making a difference in the emerging markets.
Naver
Naver is one of South Korea’s leading internet platforms – think of it as a mix of Google and Amazon. It’s the country’s dominant search engine, with over 70% market share – that’s the Google part. It then successfully integrated search with payments and commerce – that is the Amazon part. This combination has meant the business has evolved into one of the leading e-commerce platforms in the country.
Aside from its core business, Naver also has a minority stake in ZHD Group – one of the largest internet companies in Japan. We like the company because of its market-leading position and additional options for growth.
Naver's sustainable earnings power comes from its ‘top of funnel’ position for Korean internet users. Naver's search and shopping has become the gateway for Korean users to find information and discover products, which Naver is able to monetise via advertising or commission revenue.
We also see significant growth potential for many related platform businesses including cloud computing, financial services and entertainment – such as Amazon and its Prime membership benefits.
Naver’s entertainment content includes music streaming, videos and Webtoons, which are a type of digital comic that originated in South Korea but are increasingly popular internationally as they are very easy to read whilst scrolling through your smartphone.
This stock has had a difficult year as margins have weakened due to investments in new high-growth areas but we remain confident the business is on the right path with strong opportunities for its content business and meaningful growth ahead in cloud services and fintech in the domestic market.
ICICI Bank
ICICI Bank is the second largest private sector bank in India and offers its customers a full suite of services across retail, corporate and commercial banking. The bank also has strong subsidiaries which are amongst the top three players in the asset management, insurance and broking industries.
The reason we like ICICI Bank is a simple one – it is a well-managed market leader that operates in one of the world’s most underpenetrated banking systems.
The ratio of household debt to GDP in India is around 35% – significantly behind many other countries including China at over 60% and the UK at almost 85% – indicating significant headroom for future growth in household borrowing.
With the Indian economy expected to be one of the world’s fastest-growing economies over the next decade, we expect to see sustained loan growth in the banking system, benefiting industry leaders such as ICICI.
Meanwhile, the new management team is pursuing a digital transformation across multiple lines of business. This has resulted in the bank being transformed into a low-risk, steady compounder offering returns with consistent market share gains thanks to its strong position on capital, funding and technology.
Finally, from a sustainability perspective, as one of the largest banks in the country, ICICI Bank has an important role to play in providing access to capital to critical parts of the economy: including to individuals for fulfilling basic needs like housing, to small businesses which are the heart of employment creation and economic development and, finally, to large corporates involved in segments like infrastructure, renewable energy and healthcare.
Tinci
Chinese company, Ganzhou Tinci, is the world’s largest electrolyte supplier for electric vehicles batteries with over 30% market share and management are targeting over 40% market share in future years. Electrolytes are one of the four key components in Lithium-ion batteries – sitting alongside the anode, cathode and separator.
We like the company for two key reasons – first, it gives us exposure to the secular growth opportunities in electric vehicles and energy storage – two critical components of the transition to lower emissions. And secondly, from a competitive perspective, Tinci is well positioned in the market.
Its advantage comes from having a production cost that is much lower than the industry average. This is driven by the vertical integration strategy, from basic materials to solute and additives – two main components for electrolyte production.
Tinci is also well prepared for future technologies, including an ultra-high purity salt called LiFSI which possesses better technical characteristics than existing solutions in terms of conductivity, safety and lifecycle.
We believe that demand for LiFSI will increase significantly due to the growth of high-nickel content batteries and the move towards fast-charging batteries. Tinci is currently the largest producer of LiFSI globally and the fastest mover in terms of new capacity expansion.
This technology leadership builds strong entry barriers against newcomers. We believe that Guangzhou Tinci’s competitive advantages should position it to capture robust demand from batteries needed for electric vehicles and energy storage, two of the fastest-growing parts of the global economy.
Andrew Ness is a portfolio manager of Templeton Emerging Markets Investment Trust. The views expressed above should not be taken as investment advice.