Insight Article Desktop Banner
 
 
Tales From the Emerging World
  •  
June 02, 2021

Where the Digital Future Will Unfold

Insight Video Mobile Banner
 
June 02, 2021

Where the Digital Future Will Unfold


Tales From the Emerging World

Where the Digital Future Will Unfold

Share Icon

June 02, 2021

 
 

Chances are good you are reading this on a slim device in your hand. And occasionally, you may still marvel at how this gizmo opens worlds to all of us. Over the last decade, the number of people who own a smartphone has risen from 150 million to more than 4.5 billion, in a global adult population of 5.7 billion.1 Now if you are not an investor working out of Singapore or New York but a farmer in Indonesia, a restaurateur in Russia, or a doctor in Nigeria, you have the same world of possibilities at your fingertips. And those possibilities are growing fastest in emerging markets.

 
 

Over the last decade, the number of internet users doubled in G20 countries, and the biggest gains by far came in 10 big emerging markets. For example, Russia, Indonesia, Brazil and India all saw the share of the adult population with internet access double, in Russia’s case to around 80 percent of the total.2

Much of this boom was driven by the fact that digital technology, including  smartphones, is increasingly affordable, within reach for emerging market customers. Of the G20 nations which added the most new mobile subscriptions last decade, four of the top five are emerging markets. China and India both added more new subscriptions than there are people in the United States or Europe. The quality of those connections is also improving rapidly. Of the 10 countries where internet bandwidth is growing fastest, according to the OECD, eight are in the emerging world.3

The real digital action is moving away from the acknowledged tech superpowers—the United States and China—to other emerging markets, driven in large part by youth.   

Millennials recently became the world’s most numerous generation. A disproportionately large majority of them live in emerging countries, representing two thirds or more of the population in young countries like India and Nigeria, compared to just a third in older ones like Germany and Italy, and half in the United States.4 Moreover, while younger generations are shrinking as a share of the population in older societies, they are still growing in many emerging markets. Raised on the internet, they will shape its future, and will continue to find innovative ways to meet everyday needs through digital technology.

 
 
 
DISPLAY 1
A Critical Mass of Millennials
Digital natives are concentrated in emerging countries
 

Source: Financial Times, BAML, Kleiner Perkins.

 
 

In richer countries, many consumers young or old have ready access to an elaborate and reliable infrastructure of bricks and mortar service industries, such as banking, retail, health care and education, with which they are familiar and comfortable. They need a reason to switch. In emerging countries, where many people have limited or no access to such services, they are rushing to the first digital offerings that come their way. 

Thus the absence of legacy infrastructure is one of the most powerful drivers of rapid digital change in the emerging world. The European Center for Digital Competitiveness scores G20 nations by pace of progress in digital ecosystems and mindset, and scores four emerging nations in the top five.5

One intriguing aspect of the digital revolution is that it has the potential to lift up a broad swathe of emerging markets simultaneously. In the past, the hopes of emerging economies rested largely on exports. Commodity exports were a live option for those rich in raw materials. Manufactured exports brought prosperity only to a disciplined few who managed to mobilize their societies to build competitive factories.

Digital technology is a very different model. It is not an export competition, with few winners. It has the capacity to transform for the better any large domestic economy, including the many that have been forgotten by global investors. Consider just these seven: Indonesia, Pakistan, Nigeria, Bangladesh, Philippines, Egypt and Vietnam. Each has a population greater than 100 million. Together, they are three times more populous than Europe. Of the billion-plus people who live in these seven countries more than half are still not connected to the internet.6 The upside potential remains huge.

For decades, these markets were ignored, owing in good part to lack of trust in their governments and financial institutions, problems that transparent and secure digital services have the potential to solve, quickly.  In emerging countries, including Indonesia, the Philippines, Egypt and Vietnam, virtually everyone has a mobile phone, but only a quarter to half have a bank account.7 Many, if not most, don’t have a credit card. It’s both a lack of legacy infrastructure, and a lack of trust in existing institutions, that sets these countries up for explosive growth in digital banking, cash and other services.

Despite the widespread perception that American and Chinese giants are colonizing the digital world, the reality is that many local contenders are more than holding their own, also for simple reasons. Superior knowledge of local and regional languages and tastes, and a talent pool of software designers and engineers who are more than up to the basic task. They do not necessarily need to lead in innovation, they just need to rapidly adapt technologies to local conditions.

And they are. Since 2014, more than 10,000 tech firms have been launched in emerging markets, nearly half outside China. Many have grown beyond the risky startup phase.8

Alibaba has been called the Amazon of China, but there are now also Amazons of Russia, Poland, Latin America and Southeast Asia. Local firms dominate the markets for search in Russia, ride hailing in Indonesia, and digital payments in Kenya. Nairobi and Lagos are rising as the fintech hubs of Africa, with some leading executives declaring their commitment to raise the region’s digital GDP by expanding access to internet financing.

There are at least four emerging market tech companies that are more than a decade old, with a market cap of at least $2 billion (and up to $135 billion), which over the last three years have posted average annual stock market returns higher than the Chinese e-commerce giant.9 They include the leading e-commerce service in Southeast Asia, the leading fintechs in Russia and Egypt, and the top mobile money service in Africa.  

The next step: EM adopters and adapters are becoming the new innovators, pushed by their younger, less patient, more demanding and needy online populations. From e-commerce to social media, fintech and ride sharing, there are already numerous examples of American giants copying from rivals in China, Indonesia and beyond. Arguably the world’s most innovative e-commerce sites now operate in Asia, where they are driving sales by “gamifying” the buying process, providing platforms for group buying, and otherwise embellishing on the Amazon model. The big risk of course is that as these companies grow, they become a bigger target for politicians and regulators.

It's early days. The internet era took off in earnest around three decades ago in developed countries, only a decade ago in emerging countries. Now, with a smartphone in most adult pockets, and rising demand from tech-savvy youth, the revolution is unfolding fastest in emerging markets. Even outside the well-known internet boom in China, thousands of startups are rising, targeting a virtually endless list of unsatisfied needs, underserved populations.10 Some have already become national or regional market leaders. A few are already teaching new tricks to the American incumbents. To an extent still widely unrecognized, the most ingenious uses of digital technology are likely to be shaped in the emerging world.

 
 

RISK CONSIDERATIONS
There is no assurance that a portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline and that the value of portfolio shares may therefore be less than what you paid for them. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this portfolio.  Please be aware that this portfolio may be subject to certain additional risks. In general, equities securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, market and liquidity risks. The risks of investing in emerging market countries are greater than the risks generally associated with investments in foreign developed countries. Stocks of small-capitalization companies entail special risks, such as limited product lines, markets, and financial resources, and greater market volatility than securities of larger, more-established companies. Derivative instruments can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on the Portfolio’s performance. Illiquid securities may be more difficult to sell and value than public traded securities (liquidity risk). Non-diversified portfolios often invest in a more limited number of issuers. As such, changes in the financial condition or market value of a single issuer may cause greater volatility.

 
 

1. Ben Evans, Haver, UN Population Database.
2. ITU World Telecommunications Database/ICT Indicators Database, OECD.
3. ITU World Telecommunications Database/ICT Indicators Database, OECD.
4. Financial Times, BAML, Kleiner Perkins. Millennials are defined as those born between 1981 and present.
5. ESCP Business School’s European Center for Digital Competitiveness.
6. Haver, UN Population Database.
7. WDI, UN. Data as of December 2020.
8. BCG, MSIM.
9. Bloomberg, MSIM.
10. MSIM.
 

 
ruchir.sharma
Head of Emerging Markets and Chief Global Strategist
Global Emerging Markets Team
 
 
Featured Funds
 
 
 
 
 

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. It includes all private and public consumption, government outlays, investments and net exports.

IMPORTANT DISCLOSURES
The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. Furthermore, the views will not be updated or otherwise revised to reflect information that subsequently becomes available or circumstances existing, or changes occurring, after the date of publication. The views expressed do not reflect the opinions of all portfolio managers at Morgan Stanley Investment Management (MSIM) or the views of the firm as a whole, and may not be reflected in all the strategies and products that the Firm offers.

Forecasts and/or estimates provided herein are subject to change and may not actually come to pass. Information regarding expected market returns and market outlooks is based on the research, analysis and opinions of the authors. These conclusions are speculative in nature, may not come to pass and are not intended to predict the future performance of any specific MSIM product.

Certain information herein is based on data obtained from third party sources believed to be reliable. However, we have not verified this information, and we make no representations whatsoever as to its accuracy or completeness.

The information herein is a general communications which is not impartial and has been prepared solely for information and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. The material contained herein has not been based on a consideration of any individual client circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. To that end, investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

Past performance is no guarantee of future results.

This communication is not a product of Morgan Stanley’s Research Department and should not be regarded as a research recommendation. The information contained herein has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

There is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. Prior to investing, investors should carefully review the strategy’s / product’s relevant offering document. There are important differences in how the strategy is carried out in each of the investment vehicles.

DISTRIBUTION
This communication is only intended for and will only be distributed to persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations.

Ireland: MSIM Fund Management (Ireland) Limited. Registered Office: The Observatory, 7-11 Sir John Rogerson’s Quay, Dublin 2, D02 VC42, Ireland. Registered in Ireland as a private company limited by shares under company number 616661. MSIM Fund Management (Ireland) Limited is regulated by the Central Bank of Ireland. United Kingdom: Morgan Stanley Investment Management Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No. 1981121. Registered Office: 25 Cabot Square, Canary Wharf, London E14 4QA. Dubai: Morgan Stanley Investment Management Limited (Representative Office, Unit Precinct 3-7th Floor-Unit 701 and 702, Level 7, Gate Precinct Building 3, Dubai International Financial Centre, Dubai, 506501, United Arab Emirates. Telephone: +97 (0)14 709 7158). Germany: MSIM Fund Management (Ireland) Limited Niederlassung Deutschland, Grosse Gallusstrasse 18, 60312 Frankfurt am Main, Germany (Gattung: Zweigniederlassung (FDI) gem. § 53b KWG). Italy: MSIM Fund Management (Ireland) Limited, Milan Branch (Sede Secondaria di Milano) is a branch of MSIM Fund Management (Ireland) Limited, a company registered in Ireland, regulated by the Central Bank of Ireland and whose registered office is at The Observatory, 7-11 Sir John Rogerson’s Quay, Dublin 2, D02 VC42, Ireland. MSIM Fund Management (Ireland) Limited Milan Branch (Sede Secondaria di Milano) with seat in Palazzo Serbelloni Corso Venezia, 16 20121 Milano, Italy, is registered in Italy with company number and VAT number 11488280964. The Netherlands: MSIM Fund Management (Ireland) Limited, Rembrandt Tower, 11th Floor Amstelplein 1 1096HA, Netherlands. Telephone: 31 2-0462-1300. Morgan Stanley Investment Management is a branch office of MSIM Fund Management (Ireland) Limited. MSIM Fund Management (Ireland) Limited is regulated by the Central Bank of Ireland. France: MSIM Fund Management (Ireland) Limited, Paris Branch is a branch of MSIM Fund Management (Ireland) Limited, a company registered in Ireland, regulated by the Central Bank of Ireland and whose registered office is at The Observatory, 7-11 Sir John Rogerson’s Quay, Dublin 2, D02 VC42, Ireland. MSIM Fund Management (Ireland) Limited Paris Branch with seat at 61 rue de Monceau 75008 Paris, France, is registered in France with company number 890 071 863 RCS. Spain: MSIM Fund Management (Ireland) Limited, Sucursal en España is a branch of MSIM Fund Management (Ireland) Limited, a company registered in Ireland, regulated by the Central Bank of Ireland and whose registered office is at The Observatory, 7-11 Sir John Rogerson’s Quay, Dublin 2, D02 VC42, Ireland. MSIM Fund Management (Ireland) Limited, Sucursal en España with seat in Calle Serrano 55, 28006, Madrid, Spain, is registered in Spain with tax identification number W0058820B. Switzerland: Morgan Stanley & Co. International plc, London, Zurich Branch Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (“FINMA”). Registered with the Register of Commerce Zurich CHE-115.415.770. Registered Office: Beethovenstrasse 33, 8002 Zurich, Switzerland, Telephone +41 (0) 44 588 1000. Facsimile Fax: +41(0)44 588 1074.

U.S.: A separately managed account may not be appropriate for all investors. Separate accounts managed according to the Strategy include a number of securities and will not necessarily track the performance of any index. Please consider the investment objectives, risks and fees of the Strategy carefully before investing. A minimum asset level is required. For important information about the investment manager, please refer to Form ADV Part 2.

Please consider the investment objectives, risks, charges and expenses of the funds carefully before investing. The prospectuses contain this and other information about the funds. To obtain   a prospectus please download one at morganstanley.com/im or call 1-800-548-7786. Please read the prospectus carefully before investing.

Morgan Stanley Distribution, Inc. serves as the distributor for Morgan Stanley Funds.

NOT FDIC INSURED | OFFER NO BANK GUARANTEE | MAY LOSE VALUE | NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY | NOT A BANK DEPOSIT

Hong Kong: This document has been issued by Morgan Stanley Asia Limited for use in Hong Kong and shall only be made available to “professional investors” as defined under the Securities and Futures Ordinance of Hong Kong (Cap 571). The contents of this document have not been reviewed Futures Commission in Hong Kong. Accordingly, save where an exemption is available under the relevant law, this document shall not be issued, circulated, distributed, directed at, or made available to, the public in Hong Kong. Singapore: This publication should not be considered to be the subject of an invitation for subscription or purchase, whether directly or indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor under section 304 of the Securities and Futures Act, Chapter 289 of Singapore ("SFA"), (ii) to a "relevant person" (which includes an accredited investor) pursuant to section 305 of the SFA, and such distribution is in accordance with the conditions specified in section 305 of the SFA; or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. In particular, for investment funds that are not authorized or recognized by the MAS, units in such funds are not allowed to be offered to the retail public; any written material issued to persons as aforementioned in connection with an offer is not a prospectus as defined in the SFA and, accordingly, statutory liability under the SFA in relation to the content of prospectuses does not apply, and investors should consider carefully whether the investment is suitable for them. This publication has not been reviewed by the Monetary Authority of Singapore. Australia: This publication is disseminated in Australia by Morgan Stanley Investment Management (Australia) Pty Limited ACN: 122040037, AFSL No. 314182, which accept responsibility for its contents. This publication, and any access to it, is intended only for “wholesale clients” within the meaning of the Australian Corporations Act.

Japan: For professional investors, this document is circulated or distributed for informational purposes only. For those who are not professional investors, this document is provided in relation to Morgan Stanley Investment Management (Japan) Co., Ltd. (“MSIMJ”)’s business with respect to discretionary investment management agreements (“IMA”) and investment advisory agreements (“IAA”). This is not for the purpose of a recommendation or solicitation of transactions or offers any particular financial instruments. Under an IMA, with respect to management of assets of a client, the client prescribes basic management policies in advance and commissions MSIMJ to make all investment decisions based on an analysis of the value, etc. of the securities, and MSIMJ accepts such commission. The client shall delegate to MSIMJ the authorities necessary for making investment. MSIMJ exercises the delegated authorities based on investment decisions of MSIMJ, and the client shall not make individual instructions. All investment profits and losses belong to the clients; principal is not guaranteed. Please consider the investment objectives and nature of risks before investing. As an investment advisory fee for an IAA or an IMA, the amount of assets subject to the contract multiplied by a certain rate (the upper limit is 2.20% per annum (including tax)) shall be incurred in proportion to the contract period. For some strategies, a contingency fee may be incurred in addition to the fee mentioned above. Indirect charges also may be incurred, such as brokerage commissions for incorporated securities. Since these charges and expenses are different depending on a contract and other factors, MSIMJ cannot present the rates, upper limits, etc. in advance. All clients should read the Documents Provided Prior to the Conclusion of a Contract carefully before executing an agreement. This document is disseminated in Japan by MSIMJ, Registered No. 410 (Director of Kanto Local Finance Bureau (Financial Instruments Firms)), Membership: the Japan Securities Dealers Association, The Investment Trusts Association, Japan, the Japan Investment Advisers Association and the Type II Financial Instruments Firms Association.

IMPORTANT INFORMATION
EMEA: This marketing communication has been issued by MSIM Fund Management (Ireland) Limited. MSIM Fund Management (Ireland) Limited is regulated by the Central Bank of Ireland. MSIM Fund Management (Ireland) Limited is incorporated in Ireland as a private company limited by shares with company registration number 616661 and has its registered address at The Observatory, 7-11 Sir John Rogerson’s Quay, Dublin 2, D02 VC42, Ireland.

Charts and graphs provided herein are for illustrative purposes only.

The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the applicable European or Swiss regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.

MSIM has not authorised financial intermediaries to use and to distribute this document, unless such use and distribution is made in accordance with applicable law and regulation. Additionally, financial intermediaries are required to satisfy themselves that the information in this document is appropriate for any person to whom they provide this document in view of that person’s circumstances and purpose. MSIM shall not be liable for, and accepts no liability for, the use or misuse of this document by any such financial intermediary.

The whole or any part of this work may not be directly or indirectly reproduced, copied, modified, used to create a derivative work, performed, displayed, published, posted, licensed, framed, distributed or transmitted or any of its contents disclosed to third parties without MSIM’s express written consent. This work may not be linked to unless such hyperlink is for personal and non-commercial use. All information contained herein is proprietary and is protected under copyright and other applicable law.

All information contained herein is proprietary and is protected under copyright law.

Morgan Stanley Investment Management is the asset management division of Morgan Stanley.

 

Check the background of our firm and registered representatives on FINRA's BrokerCheck

It is important that users read the Terms of Use before proceeding as it explains certain legal and regulatory restrictions applicable to the dissemination of information pertaining to Morgan Stanley Investment Management's investment products.

The services described on this website may not be available in all jurisdictions or to all persons. For further details, please see our Terms of Use.

Not FDIC Insured—Offer No Bank Guarantee—May Lose Value
Not Insured By Any Federal Government Agency—Not A Deposit

Subscriptions    •    Privacy & Cookies    •    Terms of Use

©  Morgan Stanley. All rights reserved.

Morgan Stanley Distribution, Inc. Member FINRA/SIPC.