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Latest edition

Defining the investment opportunity

Mikael Karlsson, Partner, Vice Chairman, Actis, Luxembourg

The investment world is becoming more complex. Many of the traditional guidelines which have helped investors make sense of the economic and political environment in different countries are no longer useful when allocating capital. Investors who treat the 80+ Emerging Markets in particular as a single, homogenous group risk misjudging their strategies as a result. What is needed is a new lens through which investors can compare and contrast the risks and opportunities they face.

At Actis, we have therefore grouped the countries we invest in into six new categories through which we believe investors should view the world. They are Global Influencers, Big Middles, Supply Chain Heroes, Stable but Small, Natural Resource Winners, and the Structurally Challenged. The countries within each category have a number of similar characteristics which can help investors make more informed decisions than taking a one-size-fits-all view of the Emerging Markets.

This framework is to help investors think more coherently about our markets. It means we are able to make better investments with clearer objectives, using a common language both internally and externally with our own investors.

Our objective in creating this framework is to help investors think more coherently about those markets. This means we are able to make better investments with clearer objectives, using a common language both internally and externally with our own investors.

As a global allocator of capital, we are always looking for the best risk-adjusted returns. How do we do this? We look at secular tailwinds: the energy transition, digital transformation and new economy real estate. We call on our deep understanding of our markets, thanks to our 75-year heritage across more than 40 countries. We take a long-term perspective, which enables us to look beyond the headlines to deliver solid returns over many years. And we look at the investment thesis of each opportunity, analysing the risks and potential returns behind each business we assess.

Our new framework enables us to make deeper, more considered decisions when using these criteria. This helps us better assess both market volatility and the risk-return opportunities we face. It also helps us understand the structural changes that may be going on around the world, and how we can benefit from them. When looking at natural resources for example, thanks to net-zero and electrification, mineral resource producers are replacing oil and gas owners as the most significant winners. Our framework gives us an overview of which countries these changes may affect, guiding our decision-making.

The framework also helps us decide whether a trend in one country means other countries in the same group will benefit. And it also allows us to take decisions with greater conviction. We have, for example, decided to invest in Mexico in part because of the high level of domestic savings, a key feature of countries in the ‘Big Middles’ category.

Our framework allows us to better assess the countries and businesses we invest in, and how we can take advantage of the opportunities they offer. We believe it will help investors around the world to see the Emerging Markets in a clearer way and provide a better understanding of the potential they offer.

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