Asia is the hot continent for socially responsible investors looking to put money into the emerging markets.
According to EPFR Global data, China and its Asian peers attracted 75 cents out of each dollar of capital invested in 2020 across emerging market stocks compliant with environmental, social, and governance, or ESG, principles, Bloomberg reports. The trend has continued, with the region bringing in 83.33 cents per dollar invested in ESG investments in the emerging markets so far this year.
EPFR data showed that out of a record $30 billion inflows into ESG funds last year, Asia attracted $22.4 billion. In 2021, the region has gathered $5.5 billion, compared to $1.1 billion in the rest of the developing world.
Asian countries have been a go-to for international equity investors as the region has enjoyed relative success in handling the coronavirus pandemic, notably China, where the economy showed positive growth over 2020. Additionally, Asian economies are projected to expand faster than the rest of the world in 2021.
Meanwhile, fast-growing technology companies like Tencent Holdings Ltd. and Alibaba Group Holdings Ltd. are just some of the carbon-light digital businesses that have outscored the commodity and energy producers of Latin America, the Middle East, Africa, and Russia on ESG metrics.
“There is a natural pull toward Asia. Technology companies are generally asset light businesses, which naturally mean they have better ESG credentials,” Claire Peck, an investment specialist at JPMorgan Asset Management, told Bloomberg, adding that “if you look at Latin America and EMEA, which are much more commodities driven, then naturally technology will look better on standard ESG metrics.”
Asia has developed into a technology and consumption focal point of emerging markets in recent years. Over 98% of the weight in the benchmark gauge for information-technology companies in the developing world can be traced back to five of the region’s markets, including Taiwan, South Korea, China, India, and Hong Kong. Consequently, it is nearly impossible for ESG asset allocators to avoid the continent.
Furthermore, many money managers see the emerging markets as a growth opportunity due to their demographics.
“There is no other region in the world with the same opportunity set for investors because there is no other region with 3 billion people growing at an average 8%,” Tom Masi, the co-portfolio manager of the emerging equity strategy at GW&K Investment Management LLC, told Bloomberg. “Brazil, Russia and South Africa have a number of well-managed companies, many with great ESG credentials but there is less economic growth and no matter how many great companies they might have, they will lag behind Asia.”
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