One of the key reasons that we haven’t yet seen the capital outflows normally experienced by emerging market economies (EMs) when the US Federal Reserve raises rates is the commodity demand driven by the move to environmental, social and governance investing strategies (Opinion, July 4).
Some of the commodity demand is long term, not just short term. Take
the case of Indonesia, which has already attracted major foreign direct investment relating to nickel, a key metal in electric vehicle production. The FDI has supported the rupiah, which didn’t slide dramatically as one would have predicted.
This has allowed the Jakarta government room to focus on implementing its reform programme, such as the omnibus bill, which is critical to delivering the labour market reforms the country needs.
I believe EMs are very under-represented in major global indices given the history and the “high risk” stigma, even though many listed EM companies have operations all over the world, including in developed markets.
In addition, many investors question EM companies’ accounting and reporting standards and ESG disclosure records. Some of these worries are reasonable but some need to be updated. Many EM managements are educated and trained in developed countries and have adopted global accounting standards in their own business operations. In addition, many EM companies have been using advanced ESG monitoring technology and reporting standards for over a decade. Some are actually making
a better effort than those listed in developed markets. Finally, the attraction of EMs is no longer just commodities but also new technological frontiers.
Two of the biggest semiconductor manufacturing hubs are based in EMs — Taiwan and South Korea.
Bromley, Kent, UK