We highlight the top UK firms in the world's high-growth regions.
Who isn't interested in a slice of emerging markets action these days? The risks of investing in some of the more volatile areas of the world perhaps don't seem so great after the havoc the west has inflicted upon itself in the last few years.
The old economies of Europe and the US appear tired and ailing, while soaraway GDP growth in countries such as China and India appears to offer investors the opportunity for rich rewards.
Difficulties in accessing information and unfamiliar languages can be major obstacles to researching individual stocks in far-flung places. These can be overcome by buying actively managed funds or passive exchange-traded funds (ETFs), but there are other issues which apply as much to funds as to individual stocks:
- listing regulations on stock exchanges in developing countries can be less strict than in the UK, with poorer disclosure and transparency;
- ownership of companies can sometimes be opaque, with complex structures obscuring controlling interests whose aims may not be aligned with those of ordinary shareholders; and
- high GDP growth does not necessarily translate into proportional returns for investors in local companies because of the way emerging markets firms finance their growth
Playing at home
An alternative way for UK investors to play emerging markets is to invest in FTSE companies with good exposure to these regions rather than in the domestic markets of the regions themselves. As our own Alan Oscroft pointed out last month, you can Buy British, Buy The World.
We've scoured the information on 'geographical segmentation' in the annual reports of the 200 biggest UK-listed companies and picked out the emerging markets aristocrats for our region-by-region guide.
We start with… Latin America.
|Company||Business sector||Revenue from|
& North America
|Fresnillo (LSE: FRES)||Mining||493||100%||100%|
|SABMiller (LSE: SAB)||Beverages||3,836||29%||59%|
|Antofagasta (LSE: ANTO)||Mining||459||20%||59%|
|Br Am Tobacco (LSE: BATS)||Tobacco||2,246||19%||52%|
|HSBC (LSE: HSBA)||Banking||8,144||13%||39%|
|Unilever (LSE: ULVR)||Food & House-|
|Charter (LSE: CHTR)||Engineering||228||12%||37%|
Mexican silver and gold miner Fresnillo heads the list. It was spun out of Penoles Group in 2008 and sells all its products to the Penoles refining and smelting facility; hence its entire revenue stream comes from a single customer in Mexico but the ultimate sales destinations lie further afield.
Fresnillo is more a play on the global precious metals market than the Latin American domestic economy, so not quite the type of nugget we're looking for.
Antofagasta, is often referred to as 'Chilean copper miner Antofagasta'. That may serve as a handy reminder of the risk associated with its assets being concentrated largely in one country and one metal. But for assessing which emerging market growth story you're buying into, it's sales destination not asset location that's important. Antofagasta gives you a decent slice of Latin America (20% of sales, including 12% from Chile), but the main story is the resources boom halfway around the world in Asia (39% of sales).
The consumer angle
Consumer-facing businesses offer another angle on emerging markets growth. Indeed many investors may feel consumer goods are the real place to be for tapping the growth of developing economies. Sin stocks figure prominently in South America. SABMiller and British American Tobacco derive respectively 29% and 19% of their sales from the region. They both also generate significant sales in other emerging markets.
A healthier option -- for the region's consumers at least -- is food and household goods company Unilever. Perhaps better known for its penetration of African markets, Unilever doesn't separate out Latin American sales from its 'Americas' segment in its annual report. However, an operating profit breakdown in a presentation to analysts suggests Latin America contributes around 12% to total company sales.
Nobody will be surprised, I'm sure, to find 'the world's local bank', HSBC, putting in an appearance. It boasts the biggest absolute monetary number of the seven companies in the table, representing a not insignificant 13% of the bank's total global revenue.
Small is beautiful
A tiddler alongside HSBC, Charter International is the owner of two engineering businesses: ESAB, a welding, cutting and automation solutions business with manufacturing facilities in Brazil and Argentina, and Howden Group, apparently the world leader in air and gas handling equipment. As well as generating 12% of its sales in Latin America, Charter International has a fair bit of exposure to other developing economies, notably China.
So, there you have it: los siete magnificos. If you're looking for exposure to Latin America these seven companies could repay further investigation.
In the next article in the series we'll turn the spotlight on Africa and the Middle East.
More from G A Chester:
The author owns shares in HSBC and Unilever.