Why long-term trends are more important than macro movements

Investors sometimes fixate on macro movements such as short-term economic trends such as inflation paths and interest-rate movements, but this is not the FSSA Investment Managers way. Our strategy is driven by long-term growth trends in emerging markets and the investment opportunities they create.

We stay informed of the latest macroeconomic trends, geopolitical issues or market data – but they aren’t our primary focus.

We don’t focus on quarterly earnings or demands for short-term gains. We don’t take interest rate changes as cues to reposition our portfolios or try to predict the US Federal Reserve’s next moves or China’s GDP (Gross Domestic Product) figures.

We take a long-term view. We seek out companies poised to succeed throughout business cycles. 

When identifying companies to invest in, we ask: what are people spending their money on? Which companies have the brands and competitive advantages that can drive long-term growth?

Financialisation (refers to the increase in size and importance of a country’s financial sector relative to its overall economy. Financialisation has occurred as countries have shifted away from industrial capitalism) has been increasing in importance in recent years. Regulatory reforms across Southeast Asia and India have helped millions open bank accounts for the first time while also expanding access to microfinancing and driving small-business growth.

As consumers across Asia, Latin America and Africa become richer, their banking needs increasingly evolve from basic accounts to wealth-management products. Many also start to consider protecting their assets and families, creating opportunities for insurance providers.

This has provided significant growth opportunities for the leading banking and finance companies in these regions. 

Consumers may also begin to spend more on discretionary items, increasingly opting for higher-end versions of consumer goods. This in turn drives premiumisation trends. 

At the same time, the cost of basic consumer goods in many emerging markets is still low by international standards.

In India, for example, we’ve found an abundance of high-quality consumer-goods companies helmed by experienced professional managers. Many of these companies are still small relative to peers in other markets, which implies plenty of room to grow.

A large proportion of the companies in our portfolio are driven by domestic demand. This can offer significant protection against the uncertainties of potential trade wars. In our experience, the factors that underpin domestic demand – such as penetration rates, premiumisation and import substitution – are more predictable than global market forces.

For example, considerable excitement about Mexico’s potential for nearshoring (building supply chains near a company's customer base, particularly for exporting companies) has led to a number of major multinationals re-routing supply chains through the north of the country in recent years.

Yet the FSSA GEM strategy has remained more focused on middle-class consumption. Our holdings in Mexico include a general insurance business, a grocery company and a bank that serves small and medium-sized enterprises.

These firms will benefit from the increase in demand as the middle class becomes wealthier, while facing less risk from US trade tariffs on imports compared to logistics-focused assets.

Uncertainties around US trade policy undoubtedly have the potential to disrupt emerging markets in the months and years ahead – but our portfolio of businesses with relatively low exposure to international markets should help us weather the storm.