Portfolio Manager David Semple shares his outlook for emerging markets through the end of the year, including growth expectations for China. He also discusses one of the companies he’s most excited to watch heading into 2021: WuXi Biologics.
Jenna Dagenhart: Hello and welcome to Asset TV. Joining us now to share his latest research on the rebound in emerging markets despite the uneven impact of COVID-19 is VanEck Portfolio Manager David Semple. David, what's your near term as well as your longer-term market outlook for emerging markets, and can we expect a strong finish to 2020?
David Semple: I think there's a lot of variables there, big variables that'll generally influence how the markets finish at the end of the year. Clearly the U.S. elections amongst them, the response to COVID and therapies and vaccines, therefore. It will definitely influence what the emerging markets are going to be, but it's quite clear that emerging markets are increasing mobility and increasing economic activity. Some of it, because they can. In other words, China, Taiwan, Korea, have all come out of this in pretty good shape economically in terms of the response to the virus.
David Semple: And then there's a lot of other countries that have not been so fortunate in terms of their response to the virus, but the calculus, as I've said many times, is very different for some of those emerging markets where the downside of lockdown is much worse. It's much harder to enforce because of the informality of the economies and the implications for people who are living closer to subsistence level, for instance, or have less of a social safety net. It means that they have to get back to work. So economic activity is strong and you can see it in the first in, first out of a place like China, where essentially most things have been in kind of a V-shape in terms of recovery and that's very positive.
Jenna Dagenhart: Definitely. And as you mentioned, there are some countries and regions that have been least impacted by the pandemic. That being said, do you think that the lead EM growth and global growth expectations going forward?
David Semple: So for this year, China is clearly the outlier in terms of providing any global growth. And as we move into next year, that situation will normalize a little bit. So, the ball, it bounces, it bounces highest on the first bounce. So, China's going to have been in a better place this year, and therefore, potentially the bounce back in other places might be stronger on a year-on-year, quarter-on-quarter type of basis. But I think that they—just like the sectors that have proven to be winners in this environment—the countries that are prone to be winners in this environment will tend to stretch the legs out a little bit in that sense, and provide a lot of growth leadership in a lower growth world if you take out the bounce from COVID. So emerging markets still have a place in that.
David Semple: There is a challenge for certain countries and terms of normalizing fiscal stimulus, monetary stimulus, who's going to pay for it, but that applies to develop markets as well. So, I don't think emerging markets are in any worse case. There has been a little bit more in terms of absolute monetary stimulus, cutting rates in some emerging markets countries like in Brazil, for instance. But I think they road to normalization will be a gradual and conservative because we're in a highly financialized global economy. And so, this tapering, if you like, will be very carefully done.
Jenna Dagenhart: Yeah. Speaking of different opportunities, it's always great to hear some of your top picks. So, could you give us one or two EM stocks that you're most excited about heading into 2021 and beyond?
David Semple: Well, one of the companies we were talking about this morning that I think is very interesting in this context and particularly because of their medical context is a company called WuXi Biologics. It's a contract research and contract manufacturing organization based in China but increasing their operations around the world. And essentially, a lot of discoveries are done by relatively small organizations, university labs and so forth, and to be able to do the research that's needed to bring a biologic, biosimilar or whatever to market, needs to be done in a contractual way. In other words, for a service fee, this company will do that development and research, clinical trials and so forth. And then it's manufacturing, and manufacturing biologics is not simple. They are involved in the majority of COVID vaccine efforts underway around the world.
David Semple: So this company in China is approximately 80% of the COVID vaccines around the world, they are involved in. And I think as big multinationals, small companies, small research organizations become more comfortable with this outsourcing model, the future can be very bright for them. And the company has just upped its guidance, and we've been very impressed with what we've seen from management and from the company, and so we think that's a company that will do very well going into next year.
Jenna Dagenhart: Well, David, it's always great having you. Thanks so much for joining us.
David Semple: You're very welcome. Thank you for your time.
Jenna Dagenhart: And thank you for watching. That was VanEck Portfolio Manager David Semple. And I'm Jenna Dagenhart with Asset TV. You can read David's full outlook on VanEck's website and to receive regular updates from VanEck's experts, please visit vaneck.com/subscribe.
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