Small But Mighty—Emerging Market Trends on the Cutting Edge of Change

Small companies can lead to mighty investment opportunities. Here’s a look at why Franklin Templeton Emerging Markets Equity’s Chetan Sehgal, Krzysztof Musialik and Jordan Pong are excited about smaller companies today.

COVID-19 Shifts Emerging Market Trends into Overdrive

Global equity markets remain enamored with technology giants despite seismic disruptions from the coronavirus. So far this year, market valuations for some industry titans have soared, albeit with some recent volatility. The same holds for a select few of Asia’s e-commerce and tech giants.

Since COVID-19 has emerged, the pace of digitization has noticeably increased, with more consumers shifting consumption from brick-and-mortar shops to online. We continue to see emerging market firms cultivate innovative environments, particularly those with small market capitalizations (caps).

Emerging Market Firms Spark Innovation

The global pandemic has now fast-tracked some emerging trends. We believe smaller companies are situated at the cusp of transformative investment themes with some strong tailwinds. Despite recently lagging businesses with a larger market cap, we think the current environment is fertile ground for small-cap opportunities, particularly in companies tightly aligned with macro trends.

We’ve observed two accelerating trends:

  • Biometric wearable technology. This trend lies at the intersection of wearable technology and early COVID-19 detection. The pandemic has spurred people to become more aware of their overall health, driving the demand for wearable monitors that measure respiratory rates or even heart-rate function via electrocardiogram (ECG). While fitness bands and smartwatches share some basic smartphone features, they are still categorized separately. That said, the lines are becoming increasingly blurred between everyday wearables and specific medical devices.

A prominent Chinese cloud-based healthcare services provider recently released its second-generation wearable artificial intelligence (AI) chip which places sophisticated algorithms directly on the wrist or inside the ear. The next-generation chip can detect atrial defibrillation, an irregular heart rhythm, seven times faster than the previous model, and 26 times quicker than similar algorithms.

  • Consumer premiumization. As COVID-19 has scrambled how white-collar professionals commute to work, we examine how permanent infrastructure changes in many large European cities are making electric “e-bikes” a key strategy to combatting climate change.