Portfolio Manager, Matt Culley, discusses how the pace of innovation is expanding within emerging markets – particularly in technology, finance and health care – creating both significant business opportunity and the potential for massive social impact.
Innovation is expanding rapidly in emerging markets and being used to address critical social challenges in these regions.
For example, tech companies in India are creating a digital health care ecosystem that solves for doctor shortages and broadens access to medicine. In China, startups are developing affordable and highly effective cancer screening kits.
These developments not only create business and investment opportunities, but also have the potential to make a significant social impact, not only in emerging markets, but on the world at large.
Matt Culley: We are seeing some really exciting innovation coming in technology, finance, health care and many other sectors. I think to start, we see inclusion as one of the greatest demands unlocked globally, in that there are vast swathes of the EM population that are either under- or un-served by existing institutions, and so broadening participation is creating this entirely new opportunity that didn’t exist before. So when we look at areas like technology in India, we are seeing startups start to create a completely digital end-to-end health care ecosystem. They are simultaneously solving for a doctor shortage, a lack of critical infrastructure and a complete lack of access to medicines. By creating this completely end-to-end digital health ecosystem, they are able to not only create better outcomes, but they are actually able to broaden the participation levels and access to health care.
EM over a very long period of time has a long history of leapfrogging legacy solutions. However, here the complete lack of incumbency is actually enabling them to be able to create the health care system of the future and then work backwards to today to how they implement it. In China, something similar: 60% of GDP comes from small- to medium-sized businesses, but they receive only a third of total social financing. Today what we are seeing is fintech companies that are creating technologies using blockchain and AI [artificial intelligence] to take their supply chain receivables, turn them into NFTs [non-fungible tokens] and allow them to be freely traded between the banks to be able to enable them access to credit at rates that are much lower than the prevailing rates. Simultaneously, as they scale those businesses, they are realizing that many of those frictions in China exist in many other markets. And so they are scaling that opportunity into Southeast Asia.
Similarly, when we think about biotech and health care, the pace of innovation is significantly expanding towards EM. Historically, it was all the U.S. and Europe, but today we are seeing many, many innovative startups coming out of China in EM. If you look, colorectal cancer is the third most prevalent form of cancer in China. However, only 6% of cases are caught at Stage 1; that compares to 25% in the U.S.. We are seeing innovative startups create screening kits that have more than 95% accuracy at just $150. That is a fraction of what we see in developed markets with higher efficacy.
Now, bringing it back to the market, there are 800 million at-risk people in China – 800 million human beings. So the business opportunity is huge, but just think about the massive social impact that that can have on the world. And I think what is potentially most exciting is that we are seeing more and more of these opportunities every single day, more than we have ever in our careers. And that is one of the things that makes it so exciting about being an EM investor today.
Emerging market investments have historically been subject to significant gains and/or losses. As such, returns may be subject to volatility.
Foreign securities are subject to additional risks including currency fluctuations, political and economic uncertainty, increased volatility, lower liquidity and differing financial and information reporting standards, all of which are magnified in emerging markets.
Technology industries can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants, and general economic conditions. A concentrated investment in a single industry could be more volatile than the performance of less concentrated investments and the market as a whole.
Health care industries are subject to government regulation and reimbursement rates, as well as government approval of products and services, which could have a significant effect on price and availability, and can be significantly affected by rapid obsolescence and patent expirations.
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Matthew Culley is a Portfolio Manager at Janus Henderson Investors responsible for co-managing the All-Cap Emerging Market Equity and Asia Pacific ex Japan Growth Equity strategies since 2022. Additionally, he serves as a Research Analyst focused on the Communications, Technology and Consumer sectors. Before joining the firm as an assistant portfolio manager in 2019, Matthew was a co-portfolio manager on a global equity fund and an analyst covering global equities, including global and emerging market consumer and technology, at Putnam Investments. He started with Putnam in 2008 as an investment associate on the equities team.
Matthew earned a bachelor of science degree in finance and economics from Boston College. He has 15 years of financial industry experience.
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