09 May 2024

Reshaping of supply chains presents unique opportunities for investors in emerging markets

• New whitepaper commissioned by Eastspring Investments from PwC Singapore assesses the impact of global supply chain shifts and the opportunities that are emerging for investors from this disruption
• A survey of 150 senior executives finds that rebalancing is one of the top three business priorities in 2024
• Based on the survey, business leaders expect India, Mexico and other key markets to grow in importance for their global supply chains in the future
• Survey respondents also estimate that inaction can potentially lead to almost a quarter of company profits being at risk in the medium term, across a number of sectors

SINGAPORE -Business leaders are identifying various ways to benefit from the rebalancing of global supply chains whilst also recognising the threats posed by a lack of action, which in turn could create significant opportunities for emerging markets investors, according to new research.

In a major new whitepaper – New anchors reshaping supply chains: Opportunities for investors – Eastspring Investments commissioned PwC Singapore to assess the main challenges facing business leaders across the world as they look to reshape global supply chains over the coming years. The whitepaper includes a survey of 150 senior business leaders across North America, Europe, and Asia in the automotives, electronics manufacturing, and pharmaceuticals and medical equipment sectors, assessing their attitudes towards the reshaping of supply chains.

Recent geopolitical events have forced many companies and countries to reconsider the global supply chains on which so many economies rely upon. This means that the need to rebalance supply chains is imperative for businesses and sectors, leading to opportunities for investors in Global Emerging Markets, according to the analysis.

The whitepaper finds that:

• India, South East Asia, Emerging Europe, Mexico and selected South America markets are expected to grow in importance with the future diversification of supply chains. Business leaders particularly see India as having significant future importance owing to the ongoing manufacturing boom within the country.
• Rebalancing and boosting supply chain resilience is seen as a key business priority for almost half (47%) of business leaders.
• Respondents also recognise the risks of failing to rebalance supply chains. 75% of those surveyed believe the potential profit at risk as a result of not rebalancing their supply chains would be higher than the cost of rebalancing. Business leaders estimate that between 19-24% of profits could be at risk in the next ten years, depending on the sector, as a result of failing to rebalance supply chains.
• More than one-quarter (29%) of business leaders surveyed see opportunities to benefit from access to lower factor costs as a result of the rebalancing of supply chains.
• Almost one-fifth (17%) of business leaders see rebalancing as an opportunity to build supply chains that are less carbon intensive and more sustainable.
• High costs and lack of capabilities are seen as the current biggest roadblocks to supply chain rebalancing. Business leaders see strategic partnerships (79%) and M&As (51%) as the preferred means of rebalancing supply chains.

Despite the expectation that markets including India, Mexico and Emerging Europe will grow in importance within supply chains, these markets currently only have small weightings within global and regional equity market indices. These indices also tend to be biased towards more widely held, larger cap stocks, thereby potentially reducing diversification and return opportunities. With global supply chain rebalancing creating a significant opportunity for emerging markets with the necessary resources and readiness, Eastspring Investments believes investors may need to consider a more focused approach to their emerging markets exposure to benefit from the return opportunities arising from these shifting dynamics.

Commenting on the whitepaper findings, Bill Maldonado, Chief Executive Officer and Interim Chief Investment Officer at Eastspring Investments, said:

“Investors will increasingly need to be conscious of the underlying currents in the emerging markets and their potential implications as supply chains rebalance globally. Our investment teams are clear that this rebalancing presents a once-in-a-generation opportunity for emerging markets that have the necessary resources and readiness. This therefore offers an exciting opportunity for investors to benefit from what could become a period of high growth at present low valuations.”

Sidharta Sircar, Partner, International Growth Practice, PwC Singapore added:

“Business leaders are clearly prioritising the need for rebalancing their supply chains and making their companies more resilient to external pressures, as failure to do so may negatively impact both revenues and profitability in future. This also provides a significant growth opportunity for key markets to capitalise on, by attracting investments and increasing their participation in global value chains.”

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