Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 206

3 implications of retail disruption for emerging markets

“Technological advancement, measured by the long-term change in the relative price of investment goods, together with the initial exposure to routinization, have been the largest contributors to the decline in labor income shares in advanced economies.” – IMF World Economic Outlook, April 2017.

Whilst much of the focus for an emerging markets fund manager is on conditions and developments in the emerging world, we must not lose sight of how changes in advanced economies create opportunities and risks for our investments. The rapid rate of change in the US retail industry has both industry-specific and global implications.

Retail competition at peak levels

Calendar 2017 is proving to be the most brutal year for the retail industry since 2008. Credit Suisse estimates that there will be 8,600 store closings this year, compared to the 2008 historical peak of 6,200. High-profile bankruptcies and mass job layoffs have dominated the sector’s news, yet the US economy remains relatively healthy. US retail sales (ex-food, auto dealers, building materials and gas stations) rose 3.4% in the year to March 2017, compared with an overall 3.4% fall in 2008. Consumer confidence is at its highest in 16 years. The problem is not one of demand, but of competition.

Amazon stood out in the stream of negative news for competitors, announcing plans to hire 30,000 part-time workers at the same time as reporting first-quarter revenues of US$35.7 billion, up 23% on a year earlier. The online disruption in non-perishable goods, in terms of jobs, companies and properties, is severe, and this pattern is likely to spread to other industries in both the US and other countries.

Three important implications for investors in emerging markets

The first is to recognise the opportunity that online operators have in emerging markets. Three of the world’s five largest internet companies are Chinese, with Tencent and Alibaba in particular going from strength to strength. We hold significant exposure to both.

In addition, we have holdings in Naver in Korea and Naspers in South Africa (which, as well as a stake in Tencent, has significant internet assets in other emerging markets, notably India). Where we hold retail-type companies, we have ensured either that they are predominantly in the safer perishables sector (such as Eurocash in Poland, and Lenta and Magnit in Russia) or have strong online presence (such as M-Video in Russia, and Haier Electronics in China, both of which specialise in logistics and delivery of electrical and electronic goods).

The second is to look at the technologies that support the online world. We have holdings in Samsung Electronics, SK Hynix and Taiwan Semiconductor, all of which have benefited from the significant demand for memory and processors in servers. We also own Lenovo in China, which took over IBM’s x86 server business, and Reliance Industries which, as well as its energy and petrochemical assets, owns and operates India’s first 4G telecom network, with mobile internet speeds of double its nearest competitor. We see mobile internet in India as one of the most exciting opportunities in the emerging world, and Reliance as a key beneficiary.

The third impact, which is more global in nature, is to recognise (as per the IMF quote above) that technology remains a major global deflationary force. If developed market growth is to be both slower and less inflationary than in the pre-2008 period, emerging markets, which variously offer higher growth rates and higher yields, are likely to be the recipients of significant capital flows from the developed world.

 

James Syme is a Senior Fund Manager at J O Hambro Capital Management, a wholly-owned subsidiary of BT Investment Management. This article refers to holdings in the BT Global Emerging Markets Opportunities Fund (Wholesale). This article is general information and does not consider the circumstances of any individual.

 


 

Leave a Comment:

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Supercharging the ‘4% rule’ to ensure a richer retirement

The creator of the 4% rule for retirement withdrawals, Bill Bengen, has written a new book outlining fresh strategies to outlive your money, including holding fewer stocks in early retirement before increasing allocations.

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Latest Updates

Weekly Editorial

Welcome to Firstlinks Edition 628

Australian investors have been pouring money into US stocks this year, just as they start to underperform the rest of the world. Is this a sign of things to come? This looks at 50 years of data to see what happens next.

  • 11 September 2025
Exchange traded products

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement

We need a better scheme to help superannuation victims

The Compensation Scheme of Last Resort fails families hit by First Guardian and Shield losses, as well as advisers who are being wrongly blamed for the saga. It’s time for a fair, faster, universal super levy solution.

Investment strategies

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Economy

How bread vs rice moulded history

Does a country's staple crop decide elements of its destiny? The second order effects of being a wheat or rice growing country could explain big differences in culture, societal norms and economic development.

Investment strategies

Small caps are catching fire - for good reason

Small caps just crashed the party like John McClane did in the movie, Die Hard - August delivered explosive gains. With valuations at historic lows, long-term investors could be set for a sequel worth watching.

Defensive growth for an age of deglobalisation, debt and disorder

Today’s new world order appears likely to lead to a lower return, higher risk investment environment. But this asset class looks especially well placed to survive, thrive, and deliver attractive returns to investors.

Economy

Will we choose a four-day working week?

The allure of a four-day week reflects a yearning for more balance in our lives. Yet the reliability of studies touting a lift in productivity is questionable and society may not be ready for such a shift anyway.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.