The New Emerging Market Landscape: The Single Commodity Focus Has Shifted

As emerging markets cope with the COVID-19 epidemic, Franklin Templeton’s Emerging Markets Equity team considers three new realities they see in the emerging markets today. This second post in a three-part series examines how emerging markets have diversified their economies.

In our first post in this series, we explored how emerging markets have learned from past crises to strengthen their economies and become more resilient. Part of this resilience comes from a shift in the growth drivers for many countries, which have diversified into services, technology and domestic consumption.

New Reality #2: Emerging market economies have diversified, with consumption and technology providing secular growth drivers.

Compared with 30 years ago, emerging market economies are quite different.

While some emerging economies certainly have challenged fundamentals that perhaps skew overall perceptions during crisis periods, we believe fundamentals in emerging markets remain in good shape as a whole.

Emerging economies have been through a transformation. While many investors once considered emerging markets as tied to commodity ups and downs, the asset class has become much more diversified. Today, rising domestic consumption and technology are greater drivers of economic growth for many emerging countries than commodity exports.

Economic Diversification

In the past, emerging market economies were broadly reliant on cheap exports of natural resources to developed markets. Today they benefit from both internal and external growth drivers.

Many emerging markets are primarily domestically driven, including large economies such as China and Brazil. A significant portion of exports are also intra-emerging market trades, versus exporting to developed markets.