Adnan El-Araby of the Barings Emerging EMEA Opportunities Trust says investors should take notice of the many promising companies across emerging Europe, the Middle East, and Africa.
Investors hunting for emerging-market opportunities should cast their eyes beyond Asia's better-known names, including Taiwan, China, and South Korea.
Adnan El-Araby, lead manager of the Barings Emerging EMEA Opportunities Trust (BEMO), said this on the latest BFIA Talks podcast, also available on YouTube. BEMO has invested heavily in securities markets across Eastern Europe, the Middle East and Africa.
Speaking with editor-in-chief James Mackreides, El-Araby pointed out that East Asian countries account for a large share of the MSCI emerging markets index.
Taiwan and South Korea, major players in artificial intelligence (AI), together represent about 50% of the index. China and India account for another 30%.
Focusing only on these regions could leave investors overlooking above-benchmark returns elsewhere in Europe, the Middle East and Africa (EMEA).
"We felt that our shareholders and the investors in the trust can essentially capture a lot more alpha across the entire region of EMEA," El-Araby said.
"When people discuss emerging markets, they're usually talking about Asia. Asia makes up 80% of the MSCI benchmark, which leaves the other emerging-market regions at risk of being overlooked or treated as too small to matter."
Why it's worth investing in emerging Europe
Europe has faced major disruption in recent years. Russia's invasion of Ukraine and the coronavirus pandemic both unsettled the region, but opportunities for investors remain.
"Poland is a remarkable example," El-Araby said. "With strong human capital, an entrepreneurial spirit, low corruption, and a government that is at least quasi-okay, a country can achieve a great deal.
They have managed to evolve and develop, and the economy now operates at roughly the standard of a developed market."
El-Araby pointed to Greece as another market worth exploring, noting that its government takes a hands-off approach to innovation.
Hungary may also be opening up after 16 years under right-wing populist prime minister Viktor Orbn. Its new leadership is more pro-European.
Hungary has a genuine opening now. It's nearly where Poland stood several years ago.
If the political climate improves and the new government follows through on even half of its proposed measures, innovation and ambition could gain real momentum and make the most of those opportunities.
What Africa and the Middle East bring to the table
Look farther afield and both regions start to stand out.South Africa makes up the largest holding in the BEMO Trust at 30%. Saudi Arabia accounts for 23%, while the United Arab Emirates (UAE) represents 12%.
Appointed in 2024, South Africa's Government of National Unity has "delivered some economic growth," El-Araby said. Retail bank Capitec is among the institutions benefiting from the large share of the population that remains without a bank account.
"You want to invest in companies like that," El-Araby said. "They're leaving the easy, familiar path behind and recognizing the opportunity in such a large country."
Investors in the Middle East - particularly Saudi Arabia and the UAE - can also find opportunities in healthcare, renewable energy and tourism, despite tensions across the region.
El-Araby said: "The real dividend has two parts: changing the region's mindset and finding practical ways to live and work with its neighbours."
Two, I think the region's biggest economic gain will come from the scale of its infrastructure spending. Defence will receive major investment, alongside drone technology and data centres.
About the podcast
BFIA Talks explores practical ways to manage money, invest wisely, and build wealth. Editors James Mackreides, James Mackreides and James Mackreides speak with influential guests, including CEOs, entrepreneurs, economists and fund managers, about the decisions behind financial success.
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