Emerging markets: the next engines of global growth

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The west dominates the world in terms of finance, but increasingly it’s emerging markets (EM) that are driving global economic growth. And there are strong reasons to believe that fast-developing Asian, Latin American and eastern European countries will rise further in prominence over the next two decades, thanks to the efforts of their standout companies.

“We in the west are becoming less significant, not more,” says Andrew Keiller, investment specialist in Baillie Gifford’s Emerging Markets Team, on our Short Briefings on Long Term Thinking podcast.

“That provides opportunities: it means more potential partners, more potential customers and more competition, which feels like a recipe for innovation and wealth creation.”

Keiller recently published the paper Emerging markets in 2050, exploring long-term structural shifts favouring developing economies’ growth. These include:

• an increasing demand for the ‘critical inputs’ that these nations dominate. These include raw materials needed for electrification and higher-end products such as semiconductors.
• rising trade between EM countries, which is on course to overtake exports to the advanced economies. This is complemented by the rising number of companies in these markets targeting other EMs for growth.
• their consumers’ growing spending power and appetite for local brands. In some cases, this is creating such large domestic markets that local companies don’t need to expand abroad to sustain long-term growth.
• expanding internet access, allowing digital-first services to address vast numbers of citizens whose basic needs had long been underserved.

“If you have a $30 smartphone and a 3G connection, then you suddenly have access to education, healthcare and shopping services that you didn’t before,” Keiller says.

“And not being constrained by legacy behaviours means you’re able to leapfrog into new ways of doing things. We’re seeing that in Latin America with the rise of purely online banking services from Nubank, MercadoLibre and others.”

Why SQM’s lithium appeals to patient investors

The podcast highlights further exceptional EM companies that could benefit from these themes, starting with the lithium miner SQM (Sociedad Química y Minera de Chile). It extracts the substance from brine beneath the Atacama Desert, one of the driest places on Earth. It’s a complex process that takes up to 18 months to complete.

“It relies on water in an area where water scarcity is an issue,” Keiller says. “There are regulatory changes and difficult relationships with local communities to deal with. Yet, despite the complexity, this is one of the lowest-cost places to extract the material.”

Demand for lithium is surging, thanks primarily to its use in batteries for electric vehicles, consumer electronics and energy storage systems. While there’s currently an oversupply of the commodity, that’s likely to change over the five to 10-year period Baillie Gifford’s Emerging Markets Team focuses on when making investments.

“About a third of the industry is unprofitable, and I expect that figure to go up before it comes down,” Keiller explains. “So the industry will retrench, and we’ll reach a point where prices need to rise to incentivise mining. When that happens, the lowest-cost producers will benefit first, and that’s where SQM comes in.”

Kaspi’s expansion plans

About 15,000 miles away, Kaspi.kz embodies two of the other transformational themes. The company’s ‘super-app’ is used by virtually every adult in Kazakhstan across a wide variety of tasks, from bill payments, banking and travel bookings to shopping, maps and messaging.

“Some restaurants and stores there don’t accept cards or cash anymore, only Kaspi QR payments,” Keiller says. “It’s changed the way that people behave and consume and how other companies operate – it’s a fantastic example of innovation coming from a lesser-known market.”

Beyond encouraging existing users to tap into more of its services more regularly, Kaspi aims to grow by expanding into nearby EM nations. The firm recently acquired a majority stake in the Turkish ecommerce marketplace Hepsiburada and is also active in Uzbekistan, Azerbaijan and Ukraine.

“Kaspi’s stated ambition is to have a total addressable market of 100 million people,” Keiller says. “And having visited Kazakhstan to speak to the management team, others further down the company’s chain of command and seen just how sticky its service is, we’re strongly behind that goal.”

China’s growing taste for Luckin Coffee

Luckin Coffee provides an example of a company whose domestic market is so huge that overseas expansion isn’t critical to our investment case. In 2022, the firm overtook Starbucks in having the most coffee shops in China. Since then, its number of outlets has more than doubled to more than 24,000 via a mix of self-operated and franchised stores. Yet even at this scale, it has barely tapped into the opportunity China’s 1.4 billion-strong population offers.

“In China, there are about 10 times as many tea shops as coffee stores, and there’s some suggestion that the average Chinese person only drinks about two coffees per month,” Keiller says.

Another way to consider this is that coffee consumption per person in China is only 3 per cent of that of the UK. Moreover, Luckin’s ever-changing menu – it launched 119 new products in 2024 – and the requirement that customers order via its app, provide a rich source of data to keep on top of evolving tastes and trends, which its rivals cannot match.

Curiously, Luckin will soon open a store in New York’s East Village, an area popular with Chinese-born students. However, for the most part, the US’s new tariffs should not affect it. And Keiller reflects that China continues to offer other great investment opportunities despite the ongoing trade clash.

“We’re very alive to the fact that there are geopolitical risks, if it weren’t for those, we’d probably have much more exposure to China,” he says.

“But exports to the US are not a huge part of China’s long-term growth plans, and there are many other great domestic opportunities we can still go for. If anything, recent events may cause China to double down on its ambitions for self-sufficiency in key areas, including electric vehicle batteries, solar panels and semiconductors.”

The risk of underexposure to EM

Given all emerging markets’ advantages, the category is underrepresented in many investors’ portfolios. According to one study quoted in the Emerging markets in 2050 paper, 77 per cent of funds were underweight in EM stocks at the start of 2025 based on their weighting within the MSCI ACWI index.

That may be partly down to memories of past financial crises. But as previously discussed on the podcast, there is evidence that many EM countries have become more resilient and that this is an advantageous time to buy in for active, selective stock pickers.

“There’s a big risk of underexposure,” Keiller says. “These economies and companies are likely to be very influential in the coming decades.

“They are driving change in the world more so than many developed market economies. And these aren’t speculative stories – in most cases, these businesses are profitable, scaling and operating in markets with decades of growth potential ahead.”

Words by Leo Kelion

Read more about Kaspi’s super-app, SQM’s lithium mines and Luckin Coffee.

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