Emerging Markets

Emerging markets can satisfy demand for ethical investing, says strategist

There are reasons to be optimistic about emerging markets with the region able to satisfy the growing trend for ethical investments, according to Jim Roth, founder of private equity firm Leapfrog Investments.

"There's significant numbers of businesses in emerging markets that tend to be family-owned and family run, and they often want to leave a very positive social legacy. They're often very attracted by the idea of capital that's not just seeking to make private-equity style returns, but is also seeking to have a very positive social impact," he told CNBC Thursday.

How to invest with a positive social impact

One company Roth's firm is invested in is called BIMA, which specialises in providing insurance and operates across Asia, Africa and Latin America. Roth used BIMA as an example of a company that provides decent returns while providing a social benefit.

"It's an insurance business that sells insurance using mobile phones," he said. "It's been growing at half a million customers per month. It has 20 million customers."

Roth did not reveal the firm's performance, but said it was tracking top-tier emerging market investment returns.

Time to be responsible?

This need for responsible, ethical investing, is part of a wider trend in the financial industry. Several firms are now considering the environmental, social and governance (ESG) factors of a company as part of their investment process.

"2016 really was the year that responsible investing came of age," said Geir Lode, head of global equities for Hermes Investment Management, in a press release published last week.

"From Mark Carney, governor of the Bank of England, highlighting the risk that climate change poses to financial stability through to the increased adoption of ESG market indices, it seems that the investment world has accepted that factors beyond traditional financial metrics can be material."

More broadly, the potential for greater earnings growth in emerging markets compared to developed markets presents an optimistic case for investing in these regions, according to recent analysis by BNP Paribas.

"Valuations also support the case for emerging markets, with relative valuations on both a P/E (price to-earnings) and P/B (price-to-book) basis below their historical averages," Daniel Morris, senior investment strategist for the investment bank, said in a blog post published earlier this month.

"The recovery in earnings is crucially spreading beyond the commodity sectors, notably into consumer discretionary and technology."

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