Goodbye globalisation, hello automation: Time to rethink emerging markets?

Episode Summary

Executive Summary: Barclays analysts Marvin Bart and Andreas Colbe debate whether technology will erode the long-run investment case for emerging markets (EM). Marvin argues automation and robotics weaken EM’s traditional labor-cost advantage and reduce FDI-led convergence, while Andreas counters that EM remains diverse, adaptive, and still offers diversification, growth, and asset-class opportunities—especially in credit. The episode concludes that EM is increasingly a stock-picker’s market, not a broad beta trade.

Main Topics: Rethinking Emerging Markets (REM) thesis (Priority: 5/5): Marvin defines REM as the idea that technology is changing globalization in ways that disadvantage EM by reducing the value of cheap labor and shifting production back toward advanced economies. Technology, automation, and the labor arbitrage model (Priority: 5/5): The debate centers on whether robots and AI replace the need to offshore production, undermining EM’s historical growth engine built on cheap labor and global supply chains. FDI-driven convergence versus self-driven EM growth (Priority: 4/5): Marvin argues EM productivity gains have largely come from advanced-economy foreign direct investment, which may decline; Andreas argues EM countries can adopt and develop technologies themselves. Diversity within EM and new trade patterns (Priority: 4/5): Andreas stresses EM is not monolithic, citing advanced Asian economies, China, and frontier markets that increasingly trade and invest with each other rather than only with developed markets. Asset-class differentiation: equities, FX, and credit (Priority: 5/5): Marvin sees growth-sensitive EM equities and FX as most vulnerable, while Andreas argues EM credit has delivered strong returns with lower volatility and benefits from expanding investable universe. Population, institutions, and political risk (Priority: 4/5): Marvin questions the growth potential of aging or low-literacy EMs and warns populism may weaken institutions; he argues weak institutions create more volatile outcomes than in advanced economies. From beta to alpha in EM investing (Priority: 5/5): The discussion ends with agreement that EM performance will vary much more by country and asset than in the past, increasing the importance of active selection over broad index exposure.

Key Arguments: Marvin argues technological progress now competes with labor, so the classic EM advantage of low-cost labor and offshored manufacturing is eroding. Marvin says the large EM asset outperformance of the past two decades was driven by convergence to richer economies, enabled by advanced-economy FDI and global supply chains. Marvin contends that if advanced economies can produce goods more cheaply with robots, FDI into EM manufacturing will diminish. Marvin argues EM growth should be judged in nominal terms because dividends and interest are paid in nominal dollars, not PPP terms. Marvin believes population growth is not a reliable EM tailwind because many EM regions already have negative growth or are nearing population decline, and literacy constraints limit job creation in higher-value sectors. Marvin warns that populist backlash and institutional weakening increase credit and sovereign risk in EM, making EM bonds vulnerable in periods of stress. Andreas argues technological change creates new opportunities in EM, not just losers, and can help countries leapfrog infrastructure gaps, as with mobile phones in Africa. Andreas says EM is highly heterogeneous, with some countries approaching developed-market status and others serving as new destinations for labor-intensive production. Andreas notes that EM economies increasingly develop each other, reducing dependence on advanced economies as capital and export destinations. Andreas emphasizes that EM assets are underrepresented in global portfolios relative to EM’s economic and demographic importance. Andreas argues EM credit has performed strongly even during periods of weak commodity prices, with lower volatility than US high yield. Both agree that the future of EM investing will depend more on country selection and asset selection than on a simple broad-market EM call.

Data Points: EM share of world GDP: 60% - Marvin cites this to argue EM economies are too large to ignore, though he later disputes the measure using nominal dollars. Population under age 30 in EM: 90% - Used to support the case that EM represents most of the world’s young consumers and workers. EM share of global asset markets: 17% - Marvin says EM assets are structurally underowned relative to their economic and demographic footprint. EM share of global economy in nominal dollars: about 40% - Marvin argues nominal GDP is the better measure because it reflects cash flows for investors. Sub-Saharan Africa exports to developed countries, 1990: 83% - Andreas uses this to show historical reliance on advanced economies as trading partners. Sub-Saharan Africa exports to developed countries, 2018: 37% - Andreas cites this as evidence of increasing South-South trade and diversification. Period when relative FDI into most EM peaked: 2010-2012 - Marvin says FDI into most EM economies peaked then and has since shifted back toward developed economies. Investable countries in Standard Global EM Credit Indices now: about 80 countries - Andreas highlights the growing breadth of EM credit markets. Investable countries in Standard Global EM Credit Indices 10 years ago: about 30 countries - Shows how much the EM credit investable universe has expanded. Commodity price trend: fall in real terms over time - Marvin argues commodity exporters face worsening terms of trade and weaker long-run returns. EM credit vs US high yield returns: almost as much as US high yield - Andreas says EM credit delivered comparable returns during a period when commodity prices were falling. EM credit vs US investment grade returns: twice as much as US IG - Andreas uses this to argue EM credit has been strong on a risk-adjusted basis.

Pivotal Quotes: "technology now competes directly with labor" — Marvin Bart: Core of the REM thesis: automation reduces the need to offshore production to low-wage EMs. "EM is no longer a rising tide, falling tide asset class" — Marvin Bart: Conclusion that EM outcomes will increasingly diverge by country and sector rather than move together. "EM will remain an attractive place for investors to earn long-run returns for the foreseeable future" — Andreas Colbe: Andreas’ opening defense of EM as a diversified long-term investment opportunity.

Implications: Listeners should expect wider dispersion across EM countries and asset classes, with active selection and risk assessment becoming more important than passive broad EM exposure. The strongest opportunities may shift toward selective credit and countries adapting fastest to technology and institutional change.