As many of you may be aware by now, I announced plans to retire after more than 30 years with Franklin Templeton Investments, effective January 31, 2018. Before I share my final, parting words on this forum, I’d like to take a look back at how emerging markets have changed since I first began investing in the space.
I’ve seen some amazing transformations taking place in emerging markets first-hand through my travels—including transformation in travel itself! These markets continue to evolve and present new opportunities for investors and tourists alike.
Birth of Emerging Markets
While not recognized as a formal investment class when I first started my career, many investors certainly saw the potential in emerging-market countries. I certainly did during my work as an analyst and broker in Asia in the 1970s and early 80s.
The actual birth and classification of emerging markets as an investment category in a more formal way probably could be tied to an event in 1986. The International Finance Corporation (IFC), a World Bank subsidiary, engaged in a campaign to encourage capital market developments in the less-developed countries. At that point in time, a handful of institutional investors invested US$50 million in an emerging-markets strategy at the behest of the World Bank’s IFC. A year later, in 1987, MSCI developed its first emerging-markets indexes.1
Around that time, the course of my career changed, too. I had met the legendary Sir John Templeton during my travels, and in 1987 he offered me an exciting new opportunity to manage a new emerging-markets fund. Our fund became the first of its kind to be listed on the New York Stock Exchange, opening the world of emerging markets to mainstream investors. Back then, we had only a handful of markets to invest in and today there are dozens of emerging and frontier markets to consider.
Past Challenges—and Future Opportunities
In the early days, there were a number of challenges. Besides only having a limited number of markets open to foreign investment, there were also strict foreign exchange controls and limitations. There were problems with market liquidity, corporate governance and safekeeping of securities. And, communication and placement of orders were much more primitive—no email, internet or even mobile phones. We often relied on facsimile machines.
Today, we can invest in a variety of emerging markets around the world, as well as a host of lesser-developed “frontier markets,” which offer many exciting opportunities. Many of these emerging and frontier markets have been growing at a rapid pace and are quickly assimilating the latest technological advancements. For example, many companies in emerging markets have moved straight to e-commerce and e-banking models, bypassing the establishment of brick-and-mortar retail outlets. This technology “leap frogging” is important—and I think it will likely continue to open up new investment opportunities.
When I first started investing, emerging-market economies were generally considered commodity-driven economies, as many were dependent on commodity exports for growth. Today, we have found many highly innovative companies located in emerging markets spanning many sectors and industries. Many are highly competitive globally and are moving into technology and higher value-added production processes.