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Emerging market leaders: forged through adversity
Consider investing in emerging markets and you’ll be steered towards a checklist of potential risks to your capital: political instability, currency risk, market volatility. Those warnings are there for good reason. Equally, the impact that politicians in the developed world have had on financial markets through the first half of 2025 suggests those risks are no longer confined to emerging markets; some G7 economies appear to have more in common with the developing world than they did a year ago.
Stewart Investors have been investing in emerging market companies since 1988. Over that time, we have grown accustomed to investing amid risk and uncertainty. We have evolved an approach to investing that is acutely aware of the risk of capital loss, one that focuses on the long term and guides us towards companies whose cultures and financial resilience equip them to survive episodes of economic and political turbulence. What changes, then, have we made to our portfolios in response to this year’s tariff-inspired volatility? And what do the companies we invest in have to teach their developed-market peers about resilience in times of economic and political turbulence?
What has changed: increasing our focus on the beneficiaries of domestic demand
Few asset managers have a convincing record of getting macro calls right. And, as recent weeks have shown, tariffs can change in the time it takes to call a press conference. Trying to predict where tariffs will be next year, next quarter or even next week is a futile exercise. But that doesn’t mean we should simply ignore the big picture. It may be that we are seeing a shift in the way investors perceive US Treasuries and the dollar. That would represent a fundamental change in the architecture of the financial system to which we need to respond.
Historically, Stewart Investors’ emerging-market strategies have had a significant level of exposure to companies who earn a significant proportion of their revenue in US dollars. In previous ‘risk off’ episodes, the dollar tended to rally, so our holdings’ dollar earnings gave them a measure of downside protection: a shock absorber. That emphatically wasn’t the case in April. This time, when risk assets fell, so did the dollar. In the short term, that was unhelpful: we saw material weakness in the share prices of our holdings with dollar-denominated earnings, such as Indian IT service companies. On this occasion, the parts of our portfolio that might have been expected to be defensive proved not to be. Meanwhile, banks – traditionally pro-cyclical, ‘risk on’ assets – performed well.
" Tariffs can change in the time it takes to call a press conference. Trying to predict where tariffs will be next year, next quarter or even next week is a futile exercise."
That’s an important change and it may have provided a preview of a new era of waning belief in US exceptionalism wanes and growing doubts about US fiscal sustainability. If the dollar is no longer a safe-haven asset, then our view of what is ‘defensive’ will need to change. It may be that, thanks to President Trump’s Liberation Day, domestically focused businesses in economies that would be helped by a combination of lower interest rates, a weaker dollar and lower oil prices – such as India, Indonesia and the Philippines – have become more attractive. Over the year to date, the Stewart Investors Global Emerging Market Leaders strategy has initiated holdings in two domestically focused companies:
Alfamart
Alfamart is Indonesia’s second-biggest chain of convenience stores, with over 20,000 outlets1. It plans to roll out new stores across the country over the next decade, particularly on some of the archipelago’s outer islands. This gives it a clear path to growth that depends less on President Trump’s tariffs and more on how well its management team can execute on the opportunity before them.
BDO Unibank
BDO Unibank is the largest bank in the Philippines, only 56% of whose population is currently active in the formal banking sector2. As with Alfamart, the future depends not on how well it can navigate global tariffs but on its ability to bring banking services to the rest of the population – around 50 million potential customers – by opening new branches and through its digital offering.
What hasn’t changed: investing in resilient businesses
Some of the most interesting and resilient companies in emerging markets have been built amid political upheaval and economic adversity. The managers of these businesses often have first-hand experience of:
- Hyperinflation.
- Populism and military coups.
- Currency devaluations.
- Commodity booms (and busts).
The best emerging-market companies have evolved business models and cultures that allow them to survive and grow amid the type of uncertainty that has visited developed economies this year. If the world is shifting to a new regime of increased volatility in inflation and currency markets, it could play to the strengths of companies for whom these things are the norm. One example of a company that has encountered all of these disruptions in its home market over the decades since its founding is Brazilian company WEG.
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WEG - an example of resilience
WEG’s products include generators, turbines, transformers, control panels, charging stations for electric cars and battery packs for electric buses. Founded in the Brazilian state of Santa Catarina in 1961, the company’s name is built from its three founders’ first initials – Werner Ricordo Voigt (an electrician), Eggon João da Silva (an accountant) and Geraldo Werninghaus (a mechanic). Their descendants retain significant ownership stakes today. Over the decades that followed WEG’s founding, Brazil witnessed a military coup, a military dictatorship, rapid growth, hyperinflation, economic ‘shock therapy’ and a series of political leaders facing impeachment. Throughout this, WEG grew patiently, led by a succession of long-tenured executives: 2024 saw it appointing just its fourth chief executive in its 60-year history.
Timeline of WEG and Brazil
Thanks to their experiences over recent decades, WEG’s owners and managers appear to be acutely aware of the risk of currency volatility. So they have taken care to diversify geographically and to build vertically integrated supply chains. This served it well in the disruptions caused by the pandemic, when it had enough control over its supply chain not run out of components. It may do the same in today’s de-globalising economy. (If WEG’s vertical integration looks prescient, the company is humble enough to concede that it is a matter of luck and that they might not have built the company in the same way had been building it from scratch).
Today, WEG has customers in 135 countries3, with local operations supplying key growth markets such as China, the US and Mexico. Tariffs, meanwhile, are nothing new: Brazil has historically placed high tariffs on imports such as cars, electronics and textiles. WEG’s response to this year’s turmoil has been typically pragmatic: "Our strategy of diversifying products and solutions and global presence allows us to take advantage of opportunities in the various markets where we operate and mitigate risks in times of market fluctuation … So far, WEG has not changed anything in the strategic plan because we always think about the long term."4
"So far, WEG has not changed anything in the strategic plan because we always think about the long term."
The world is becoming structurally more volatile, less certain, and riskier. Rather than attempting to manage those risks by trying to anticipate the whims of politicians, we believe there are other – better – strategies investors can adopt. Our focus is on finding companies that understand the world is inherently risky and who – in the way build their franchises, in the cultures they foster and in the way they manage their balance sheets – attempt to anticipate and mitigate those risks. It is the best of these companies, the leaders, that will continue to form the core of our portfolios.
Jack Nelson
June 2025
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