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The Asset Class: Varun Laijawalla · Strictly Business

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  You're listening to Strictly Business Podcast with Lindsay Williams.
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  One of the enduring themes of asset management is DM versus EM, that's
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  developed markets versus emerging markets.
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  And it continues enthusiastically in 2026 because emerging markets have had a
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  stunning run over the past
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  18 months.
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  But there is some scepticism and sceptics say it's really just because of a bet on
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  three chip
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  companies.
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  With me is Varun Lajawalla.
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  Emerging market equity portfolio manager at 91 in London.
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  Faroon, the concentration risk was very apparent in 2025 in broader markets
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  outside of EM.
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  I mean, for example, the NASDAQ and the S&P because of AI influences.
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  How worried should investors be about concentration risk in EM markets?
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  Thank you, Lindsay, for the conversation.
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  So I think if you take it back to first principles, concentration.
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  is really a function of survivorship bias, meaning companies that do the right things
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  then
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  get rewarded by more revenues, more earnings, and a larger market cap.
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  That's really what's driving concentration.
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  So at the heart of it, I don't think concentration necessarily is a bad thing,
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  because it is essentially saying that there's
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  a handful of companies that are doing the right thing, assuming that the valuation
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  of those companies are reasonable.
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  In the US, I think the market is celebrated concentration.
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  We have a term, the Magnificent Seven, for concentration in the US.
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  So I do think it's interesting that when looking at emerging markets, we now get
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  worried by
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  concentration.
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  So I think that's probably the first point I'd make.
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  I think the second point to make is I agree.
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  If you look at the standard MSCI emerging markets benchmark, It is more
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  concentrated today than it has been in history.
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  Three stocks make up roughly 30% of the benchmark.
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  Three countries make up roughly 70% of the benchmark.
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  And I think that has implications for how you choose to invest.
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  And specifically around that point, I think it has never been a more dangerous
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  time to be a
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  passive investor in this asset class because of that.
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  dynamic.
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  I suppose the final point I'd make, Lindsay, is if you take a longer term view
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  on where we are today
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  versus where we've come from, I think the implications are quite different there.
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  So if you look at the top 10 companies in the benchmark today, I think nine out of
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  10 are
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  privately run businesses.
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  If we looked at the top 10 in the year 2000, I think seven out of 10 would have
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  been SOEs
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  and resources business.
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  It's not really run to generate stakeholder value.
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  So I think the asset class has come a long way from there.
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  We probably have a different set of problems, shall we say now.
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  I mentioned an enduring theme in my introduction of the enduring theme being
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  DM versus EM, but you've also brought up the enduring
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  theme of active versus passive.
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  That's all very well.
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  For a passive manager, when things are going really well and the sort of
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  concentration factor that you've spoken about so eloquently, it's a great thing
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  when it's going well for you.
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  But when it's not going well for you, it can be devilishly bad for you.
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  So that's where the active manager comes in.
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  And beyond the semiconductor giants, where are active managers like you actually
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  finding ideas that just following an index simply
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  can't give you?
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  I think you're right.
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  I think the active management debate is.
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  particularly important as it relates to emerging markets for the reasons we've
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  described.
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  I think there's a few areas, Lindsay, that I would say look particularly interesting
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  and particularly
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  uncrowded.
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  One is Turkey.
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  So if you look at Turkey and you talk about off the beaten path, off the 24
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  markets that constitute
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  the MSCI Emerging Markets Index, Turkey is one of the smallest with a measly 70 basis
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  point
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  weight.
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  as a country within the benchmark.
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  One of our highest conviction names sits within Turkey.
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  It's a defense contractor called Aselsan.
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  And I think Aselsan is particularly interesting because not only is it off the
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  beaten path, it's really at the
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  apex of a couple of dynamics that are coming together at the same time.
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  Namely, number one, the European nations have underspent on defence and need to
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  catch
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  up.
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  as it relates to spending, and obviously a cell cell being a key beneficiary of that.
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  And really, number two, the cash generation profile of this business has
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  taken
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  a step change upwards.
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  as one of their key customers, the Turkish government sees this opportunity in Europe
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  and therefore wants to
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  ensure that this company is well-funded to monetize that growth.
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  So I think things that are off the beaten path that really don't have a lot to do
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  with technology and AI
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  are definitely part of the opportunity set.
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  I'd probably take it one step further, Lindsay, and say, if you think about EM
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  versus DM coming
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  back to your original question.
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  I think one of the really interesting dynamics versus EM and DM is the
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  architecture on which both sets of markets have grown up with.
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  What I mean by that is, if you think about developed market architecture, it has
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  increasingly over the
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  past three decades moved to asset light, services led, whereas the asset heavy
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  has been pushed towards emerging markets.
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  I think the unintended consequence of that dynamic today is AI in its
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  many guises is disrupting service-led economies.
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  Think about vertical architecture, for example,
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  Salesforce for customer relationship management or Netflix for
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  videos on demand.
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  If you think about large language models.
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  they can disrupt that vertical architecture.
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  But if you look at emerging markets, I think two dynamics in emerging markets
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  make them more resilient.
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  One is they haven't grown up on that vertical architecture.
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  So if I want cloud in China, if I want instant messaging in China, if I want
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  video games in China, I go
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  to one company, Tencent.
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  That's horizontal architecture.
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  The scope for disruption there is much lower.
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  So I think that's one dynamic at play.
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  And I think the second dynamic is, think about that asset-heavy direction that has
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  been
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  pushed upon emerging markets.
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  Global manufacturing value added, 59% of that globally comes from Asia.
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  This is asset-heavy.
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  Now, if you think about AI as it relates to asset-heavy businesses, it is enabling
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  those businesses rather than disrupting those.
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  businesses.
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  We own a wonderful utility, a water utility in Brazil called Subespi.
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  One of the biggest risks with this business is leakage of water from their
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  pipes, namely water being
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  stolen.
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  And if you think about how AI has changed that business, detection of where and when
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  water is being stolen
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  reduces that risk.
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  That's not a business that's being disrupted by AI, it's a business that's
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  being enabled by AI.
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  And, you know, generalization, but I think that's broadly where emerging markets sit.
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  And the market is voting with their feet, which is why year to date emerging markets
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  are up 22%,
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  developed markets are up 10%.
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  It's very interesting.
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  There's so much to absorb in what you've just said.
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  But essentially, what I get from it, the main theme is that DM architecture, DM
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  markets as well,
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  could eventually become the victim of their AI success because of the
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  undermining of that architecture
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  whereas emerging markets, EM, may actually be quite resilient and even thrive on the
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  very undermining of the
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  DM architecture.
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  But let's just say this.
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  If tech turns down, do emerging markets have enough depth to hold off?
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  Do emerging market economies and markets have enough depth to hold up?
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  It's the $64,000 question, Lindsay.
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  I think I would be remiss if I didn't acknowledge that tech is...
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  the crowded trade in markets today.
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  So a tech downturn, all things being equal, would be negative for equity
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  markets globally.
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  I think it's sort of worth putting that out there.
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  Now, having said that, I think there are two mitigating circumstances.
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  One, the positioning of your active manager, coming back to the active passive
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  conversation we've just had.
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  And on that point, our positioning today is more cautious towards technology.
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  We are positioned in what we call the secret seven technology businesses in
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  emerging markets, the seven companies
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  that have pricing power that we think are changing the world today.
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  We're positioned away from technology businesses that are commoditized, that
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  don't have that pricing power.
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  Having said that, our overall exposure to technology is under-indexed versus the
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  benchmark.
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  So we've taken a approach to risk that ensures that...
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  We are positioned in what we perceive to be the right companies.
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  If tech were to turn negatively, I think that's dynamic number one.
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  I think mitigant number two is what we've discussed, which is emerging
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  markets, you know, given the heavy assets, the low obsolescence,
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  the halo theme being over indexed in our markets, I think emerging markets provide
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  more of a defensive approach to a downturn in technology than do developed markets.
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  That's what I was going to ask you next.
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  In fact, do you consider yourself to be therefore defensively positioned at 91
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  with your secret
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  seven, which presumably will remain a secret?
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  Well, it's not so secretive.
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  Three of the secret seven are the very well-known tech companies that you
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  referenced at the top of our conversation, Lindsay.
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  But yes, I mean, I think, you know, if we again take it back to first principles,
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  emerging markets is a cyclical asset
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  class.
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  over the last 20 calendar years, emerging market equity has either been the best
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  performing asset class or the
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  worst performing asset class.
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  My colleagues in the UK would call it a Marmite asset class.
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  You love it or you hate it.
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  So the approach that we take as an active manager is to ensure that we think about
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  risk as closely as
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  we think about return.
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  And that's broadly how we're positioned.
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  Varun, thank you very much for your insight.
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  Fascinating stuff.
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  Varun Lajawala is an emerging market equity portfolio manager at 91 in London.
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  The views and opinions expressed in these podcasts are those of Lindsay Williams and
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  various contributors and do not reflect the policy,
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  change, revision and
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  rethinking at any time.
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  Please do not hold us to them in perpetuity.