Sector Overview: Financials

Investment Themes in Financials

Financial Inclusion

Financial inclusion represents a key driver for economic growth across Emerging Markets (EM). From the micro side, it empowers individuals and companies to establish credit, borrow, and invest. On the macro side, it formalizes economies, improves tax collections, may reduce fiscal deficits, and it improves country credit profiles.

Only 63% of adults in emerging countries have a bank account either at a financial institution or through a mobile money provider, compared to 94% of adults in developed markets[1]. This represents a considerable catch-up opportunity as governments use technology to push their citizens into the formal economy.

Coming out of the COVID-19 pandemic, regulators in many EM countries prioritize financial inclusion to tackle inequality and drive economic growth. Policy momentum presents an opportunity for leading banks in emerging market countries in the near term. Additionally, they will likely benefit from the longer-term perspective of solid demographics and low credit penetration.

 Financials graph 11.png

Financial Digitization

Beyond the apparent structural opportunity, banks in EM have a substantial opportunity to improve earnings as they replace their physical footprints with digital platforms. The adoption of digital payments is growing rapidly, fueled by government policies, the need for financial inclusion, and the fast-growing number of internet and smartphone users. Two-thirds of unbanked adults have a mobile phone . Mobilization has created new opportunities for providing financial services in emerging countries[2].

Financial digitization not only cuts costs, it also helps collect data, improve decision making, reduce non-performing loans, boost cross-sell of profitable products, and lowers the traditional barriers to entry for new financial market players.

Industry Highlight: Insurance

Financial inclusion and digitization along with rising income, growing middle class and an ageing population present huge opportunities for insurance and asset management companies in Asia. More than a third of population in Asia would be above 50 years of age by 2030 (from nearly a fifth now)[3]. Insurance penetration remains very low across most Asian countries with huge protection gap estimated at US$49 trillion translating into new annual life premiums of US$145 billion. China and India remain the most underpenetrated markets with only 8-12% of the countries’ insurance needs covered.

Financials graph 2.png

Financials graph 3.png

Financials graph 4.png

Conclusion

For investors, financial inclusion & digitization create attractive long-term investment opportunities based on both secular growth and idiosyncratic developments across financials, technology, housing, healthcare, retail, and education sectors. Identifying these developments requires the scrutiny, presence, and experience of an active, bottom-up manager like Mirae Asset.

 


[1] World Bank Group, “The Global Findex Database 2017: Measuring Financial Inclusion and the Fintech Revolution.

[2] Global Findex database, Gallup World Poll, 2017

[3] United Nations, Department of Economic and Social Affairs, Population Division (2019). World Population Prospects 2019.

 

DEFINITIONS

Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period.

The views and information discussed in this brochure are subject to change and may not reflect the current views of the writer(s). The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of the portfolios or any securities or any sectors mentioned herein. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation.

Past performance is no guarantee of future results.

Investment Considerations — There can be no guarantee that any strategy (risk management or otherwise) will be successful. All investing involves risk, including the potential of loss of principal.

Emerging Markets Risk — The risks of foreign investments are typically greater in less developed countries, which are sometimes referred to as emerging markets. For example, political, legal and economic structures in these country may be changing rapidly, which can cause instability and greater risk of loss. These countries are also more likely to experience higher levels of inflation, deflation or currency devaluation, which could hurt their economies and securities markets. For these and other reasons, investments in emerging markets are often considered speculative. Similarly, investors are also subject to foreign securities risks including, but not limited to, the fact that foreign investments may be subject to different and in some circumstances less stringent regulatory and disclosure standards than U.S. investments.

Market Disruption and Geopolitical Risk — Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, natural and environmental disasters, systemic market dislocations, public health crises and related geopolitical events have led, and in the future may lead, to increased market volatility, which may disrupt U.S. and world economies and markets and may have significant adverse direct or indirect effects on the value of a Fund and its investments.