How tech and demographics could save emerging markets investors

LeapFrog is one private equity fund that manages $1.5 billion with the majority of its companies based in India, Asia and across Africa. However, chief executive Andrew Kuper said it was dangerous to apply a broad brush outlook to all countries.

“Ghana is an advanced democracy that is managing its economy in the face of COVID extremely well, for example,” he said. “Then you have India with its faltering response. Initially there was nothing to support non-bank financial companies and SMEs, then the government has come out for a much bigger stimulus recently.”

“It differs by country and by industry and it depends when you ask because different mechanisms come out.”

The investment climate hangs on the speed social distancing restrictions are lifted and the lower life expectancy in emerging markets countries means this could happen faster, Mr Kuper said.

“The average age in Africa is 19. And in emerging Asia is closer to 26. So, if you have a think about that in Australia and how many in that age group have got sick and died, it’s very limited,” Mr Kuper said.

“Every death is a tragedy and we know people who have died. I really don’t want to take this lightly. But from an investor and business perspective, there is a certain resilience to investing in emerging markets.”

LeapFrog’s investments in financial companies, like Indian-based digital lender NeoGrowth, are struggling. India’s sharemarket is plunging, its exchange rate has slumped and its banks are under pressure. While Mr Kuper said none of LeapFrog’s companies were facing liquidity problems, the restrictions would need to be lifted within nine to 12 months.

“Where you’re making the loans out to borrowers in lockdown, you’re having to restructure some of those loans. So those companies right now are fine but it depends on how long the lockdowns go on for.”

However, Mr Kuper said the crisis had unearthed opportunities for private equity investors as the acceleration of digital uptake meant greater demand for products reliant on mobile apps.

“A number of people have gone from late 19th century to 2020 technology in weeks,” he said. “Something that used to be a luxury good, a phone, has become a commodity and a necessity.”

WorldRemit is one company backed by LeapFrog that has seen enormous growth over the pandemic period, with the number of new customers doubling in the past three months.

It’s main competitor is Western Union and Mr Kuper said that company had typically benefited from strong brand recognition and its branch network but COVID had seen demand for cheaper, digital products gain traction in emerging markets.

“Now WorldRemit doesn’t have lots of branches but in a COVID-world that’s actually a win,” Mr Kuper said.

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