How to profit from emerging markets

“Unilever sells more to developing countries than to the US and UK combined”

There has always been something intellectually topsy-turvy about investing in emerging markets. The theory is straightforward: if you invest in developing countries with young and rapidly growing populations, cheap labour, improving infrastructure and a reasonably clean government, then stockmarket returns should be greater than those from more mature, slower-growing economies. This was the yarn I both spun and believed during three decades of involvement in emerging markets in fund management, broking and corporate finance.

Quite often, however, you were not buying into the local growth story, but into companies selling to multinationals in advanced countries, taking advantage of cheap local labour, a lack of employment rules and low taxes. A good example is the iPhone. Less than 10% of the components are actually designed and made in America. Most of the manufacturing occurs offshore, mainly in Asia. The same applies to semiconductor components, vital for a broad range of appliances