“Emerging markets are becoming more innovative”

Naomi Waistell is co-manager of Carmignac’s Article 9 emerging markets equity strategy, ‘Carmignac Emergents’, alongside Xavier Hovasse. Before joining Carmignac in May 2025, she worked for five years at Polar Capital managing an emerging market fund and a decade at Newton Investment Management.  She began her career in asset management in 2007, is a CFA charterholder and holds an Executive MBA from the University of Cambridge. We talk with her about her current thoughts on emerging markets. In another interview, we will talk with her about what characterises a good working environment for women in finance.

Naomi, which regions and countries do you currently consider particularly interesting?
2025 has been a year of resurgence for emerging markets. It seems that global investors had almost forgotten that emerging markets can generate outperforming, positive returns. But this year has seen something of a comeback, with the broader emerging markets index strongly outperforming both developed markets as a whole, and the US – and this despite being buffeted by tariffs and the previously unassailable rise of the ‘magnificent 7’. Emerging markets comprise 24 countries, which are often referred to and treated as a homogenous block – but the individual economies are in fact highly heterogeneous, with very varied trends in terms of demographics, fiscal health, political cycles, external vs. domestic reliance, sectoral advantages and growth rates. Some of the more mature emerging economies – such as Taiwan and South Korea – are globally competitive in terms of their advanced technology capabilities, while others – including India and the ASEAN region are driven far more by their large domestic populations who are experiencing increasing wealth effects and still very underpenetrated for many goods and services. We typically like to have a blend of these varied opportunities reflected across the fund, constructing the portfolio by looking for the very best bottom-up companies, at attractive valuations set in a framework which deeply understands the idiosyncratic macroeconomic contexts of our investments.

What has been the best emerging market in 2025, so far?
South Korea. Traditionally the South Korean equity market has been famed for the ‘Korea Discount’. Stocks have traded at lower multiples versus EM or global counterparts due to poorer governance structures and low market transparency which penalise minority investors. Particularly since the election of the new president, in June, structural reforms are now being implemented to help address these challenges and promote fairer governance, higher ROEs and attractive dividend payouts.  However, Korea is challenged by some of the worst demographics in the world, with an aging and declining population. On top of aligning the interests of controlling and minority shareholders, there is also therefore a social imperative behind these reforms: to reduce inequalities and encourage broader wealth distribution, diversifying wealth away from the property market and providing better long-term support for the pension system.

Where do you currently invest new money, when you are investing for your fund?
Our process is primarily bottom up with a focus on knowing the companies we invest in very, very well and being able to value the assets, operations and growth opportunities in detailed manner. Ultimately, we want to invest in very high-quality companies – those with strong balance sheets, cash flows, returns and management teams – but we are not agnostic as to the prices and valuation levels we will pay. This typically means we favour contrarian opportunities, or dips in the share price that are not caused by fundamentals or by any long-term structural change to the investment case. We try to use these moments to our advantage, to buy new companies that need our investment criteria or increase weightings in existing holdings. We are big believers in the power of AI and its transformative abilities. What many forget is that this AI revolution, which is largely being played out in the US, would not be possible without the supply chain which exists, almost exclusively, in Asia. Additionally, the Chinese market, with its declining labour force and extensive need for manufacturing capabilities, together with a very digitally-inclined consumer base is proving to be ahead of the curve in the need for and implementation of AI applications. Most recently, this approach and analysis has meant we have added to names, such as Sk Hynix in South Korea and CATL in China which we believe are still underappreciated and represent exactly the type of one-of-a-kind global leaders that we like to own.

Can we continue to assume that emerging markets have a low correlation with industrialised countries?
Historically there have been two important, global correlations for EM markets: a negative correlation with the US dollar and a positive correlation with commodities. The first is due to the fact that a lot of emerging market governments have significant amounts of debt denominated in US-Dollars, therefore, when the USD strengthens the interest payments become more expensive. There is also the factor that a strong US dollar usually coincides with higher interest rates in the US, which attracts more capital back to that market. Happily, this is the opposite scenario to what is currently influencing markets, and is part of the reason for the strength of emerging markets this year. The linkage with commodity prices is owing to the fact that many emerging markets are resource-risk and export large amounts of commodities. When prices rise this increases export revenue and growth for these economies.

However, more recent trends are moderating these correlations. Emerging markets overall have been reducing their exposure to US dollar debt, which lessens their external vulnerabilities. Additionally, a number of the larger emerging markets, principally in Asia, are less commodity intensive and are have been moving up the value chain to sell more advanced goods. Most importantly, intra-EM-trade has been structurally increasing (rising from 24% in 1990 to 49% in 2024), meaning that emerging markets are doing ever-more trade between themselves – and sometimes even settling in other currencies than the US Dollar. This is where we see potential for a paradigm shift as global trade lines and supply chains are re-plumbed following this year’s tariff shocks. The emerging market regions have both supply and demand for commodities, consumer goods, and capital within the region and we see a structural shift for emerging markets as a group to become increasingly self-sufficient. This is something we find very exciting. As growth differentials re-accelerate away from those in developed markets and arguably as risk premia narrows between the two groups, I do believe that an increasing proportion of investment capital will seek diversification via the attractions emerging markets can offer.

What attracts you personally to emerging markets?
I relish the variety that working across emerging markets brings. It’s endlessly fascinating to look daily at such a diverse group of economies which can each function differently at different times. There is always something happening, whether that is politically, geopolitically, economically or at the industry level and lessons from one country can be used to inform and better understand another country which is at a different stage of development. For example, India currently has many echoes of China 10-15 years ago: multiple years of high GDP growth, rising urbanisation, large-scale infrastructure build out, mass internet connectivity leading to the increased formation of exciting companies that can catalyst new consumption patterns and crucially enhance society. I believe it is a privilege to manage money on behalf of our clients, and not a responsibility to be taken lightly. I am passionate about emerging market investing because of the potential to play a part in allocating capital to companies that are some of the future resource providers, innovators or providers of access to finance, education or healthcare that can in turn aid economic progress and social development in their regions and beyond.  Emerging markets are the future bastions of growth and by allocating capital correctly we can boost burgeoning countries and companies which are seeking to maintain or improve their growth, find new sources of growth or help enable transitions to shape the future in a progressive way. This is why Carmignac Emergent’s Article 9 classification is highly important and should serve to enhance the returns we aim to deliver.

What about China, they are ahead of us in many respects – they have more punctual and faster trains and apply much more high-tech than we do. Why is China still considered an emerging market?
China is still an EM on many metrics. For example, on a GDP-per-capita basis China is still just $13,000, which compares to $82,000 in the US and $44,000 across the diverse European Union. Yes, in some of the large, tier 1 cities living conditions and availability of modern goods, services and transport infrastructure are on-par with Western standards, but much of the country is still very rural with low-income levels and poor access to services. With such a large land-mass and population, China’s challenge is to better equalize the lower half, not least so that they have more money for discretionary spending and can help contribute to the economic ‘rebalancing’ towards consumption that the Chinese economy so badly needs. Other factors which maintain China’s emerging markets status include the quality of institutions, the presence of capital controls and lower transparency and independence across financial markets.

Thank you for this interesting update on emerging markets!

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