Event Recap
Panel:
Cyril Bouchu, Head of Sales, Symbiotics Asset Management
Kristina Kuznetsova, Senior Impact Associate, Sarona Asset Management
Gerald Matthe, Lead Investment Officer, FinDevCanada
Emerging Markets Growth Potential and Challenges
Cyril from Symbiotics Group presented a paper on the Misperception of Risk in Emerging Markets. He highlighted that the perception of risk is often higher than the actual risk and that the accepted definition of emerging markets could be a barrier for asset owners. He suggested using a mix of previous definitions and the "Global South" terminology to visualize wealth disparities. Cyril emphasized the growth potential of emerging markets, citing their higher demographic and economic growth rates compared to developed markets.
Risk Aversion and Home Bias in Emerging Markets
Cyril shared the psychological bias of risk aversion and how it affects investment decisions, particularly in emerging markets. He highlighted how negative media coverage can perpetuate negative perceptions of these markets. Cyril also addressed the concept of "home bias," where investors tend to favor investments closer to home, leading to insufficient diversification. He presented data to challenge the notion that there is not enough data to support investing in emerging markets and emphasized the benefits of diversification, including lower volatility in local currency baskets.
Emerging Markets Growth Opportunities
Kristina introduced Sarona's focus on impact investing in emerging markets, supporting small and medium-sized businesses and creating economic opportunities for middle and lower-income populations. Gerald introduced FinDev Canada’s Development Finance Institution, which invests in emerging markets and development economies with a focus on agribusiness, sustainable infrastructure, and the financial industry.
Kristina highlighted that these markets are growing faster than developed ones, with projected GDP growth of 7.3% compared to 3.7% in developed markets. She emphasized that the rise of the middle class and access to finance are key drivers of economic growth. Cyril added that fintech is a significant opportunity in these markets, as it allows for financial inclusion and leapfrogging of traditional banking systems. Gerald agreed, noting that financial inclusion and infrastructure financing are key areas of focus.
Managing FX Risk in Emerging Markets
The panelists also discussed the challenges of currency exposure and volatility in these markets, with Cyril suggesting that macro analysis and matching investment needs with local currency are important considerations.
Kristina and Gerald noted that many borrowers struggle to manage FX risk, particularly when dealing with hard currency lenders. Kristina mentioned that Sarona, conducts FX analysis every quarter and tries to mitigate FX risk through investments in companies with hard currency revenues or stable consumer businesses. Gerald added that the structural issue of most liquidity existing in hard currencies remains a challenge for borrowers. He suggested that finding sources that provide FX hedging products or concessional sources could help alleviate this issue.
Emerging Market Private Investors: The Role of Local Governments and Policymakers
Cyril and Gerald shared that private investors are often risk-averse and seek diversification, but can be encouraged to invest in emerging markets by alleviating perceived risks. They noted that development finance institutions can play a role in de-risking investments and that private sector mobilization is a core pillar of their mandate. Kristina emphasized the importance of stable governance, regulatory clarity, and transparency for attracting private investors. She also highlighted the need for diversification and the growing interest from investors in emerging markets.
Emerging Market Institutional Investor Growth
Cyril noted that while most of Symbiotics' investors are from developed markets, there is growing interest from institutional investors within emerging markets to participate in these investment opportunities. Gerald adds that there is significant intracontinental and cross-border investment activity within regions like sub-Saharan Africa, Latin America, and Asia, as well as some instances of investment from the Global South into developed markets. He cited examples of Nigerian and South African banks establishing presence in the US and UK, and a successful fundraising by a Mauritian bank targeting Asian investors.
Non-Financial Analysis and Impact Investment
Kristina discussed non-financial analysis, focusing on job quality and decent work according to UN definitions, sharing information on full-time jobs and salaries, comparing them to living wages per country and industry. She also mentioned analyzing company policies, such as paid leave, maternity leave, and health benefits, as well as gender equity policies. Cyril echoed Kristina's points, emphasizing the importance of transparency in impact reporting and the positive role of regulation in shaping impact investment.
Building Strong Local Partnerships in Emerging Markets
The panel discussed building strong local partnerships and staying informed about grassroots market trends in emerging markets. Cyril emphasizes the importance of having a local presence and networking. Gerald agreed, mentioning FinDev Canada’s recent opening of a subsidiary in Singapore to build relationships in Asia. Kristina highlighted the value of long-term relationship building, sharing an anecdote about how informal discussions during due diligence can reveal crucial information about potential partners' values. The panelists stressed the importance of on-the-ground presence, regular in-person contact, and investing time in developing and nurturing relationships with local partners.
Shared resources:
Invitation
Investing Beyond Borders: Navigating Emerging and Frontier Markets
Explore the opportunities and challenges of impact investing in emerging and frontier markets in this introductory session. Gain insights from Symbiotics, a global leader in inclusive finance, as they share key findings from their latest report, Misperception of Risk in Emerging Markets. The session will also feature Sarona Asset Management and FinDev Canada, sharing practical perspectives on innovative strategies and real-world case studies. Designed for both new and experienced professionals, this event is for anyone looking to deepen their understanding of investing for impact in underserved regions.
Featuring
Panel:
Cyril Bouchu, Head of Sales, Symbiotics Asset Management
Gerald Matthe, Lead Investment Officer, FinDevCanada
Kristina Kuznetsova, Senior Impact Associate, Sarona Asset Management
Moderator:
Lauren Iuliani, Senior Manager, Innovative Finance, Plan International Canada