High-quality and profitable companies in emerging markets
Our philosophy at the Guinness Emerging Markets Equity Income fund is based on identifying quality firms, defined as those that have consistently generated returns on capital above their cost of capital.
Such companies tend to pay sustainable dividends because of the cash profits they generate. This sets our approach apart in emerging market stocks, which are often characterised by pronounced volatility.
We avoid rollercoaster cyclical sectors and focus on businesses with stable, consistent financial characteristics that can weather different market environments.
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Three emerging market stocks to consider
Largan Precision (Taiwan: 3008) is a Taiwanese manufacturer specialising in the design and production of optical plastic lenses and is a key supplier for Apple. Largan’s core business has been the smartphone market, but it has recently been expanding into co-packaged optics (CPO) technology.
CPO is essential for data transmission between AI chips and has proved to be more energy-efficient and less heat-producing than copper wires. Exploiting its existing expertise in precision optical lenses, Largan is developing in-house technical capabilities to manufacture fibre array units (FAUs), a central component of CPO, which may prove to be a crucial element for determining success.
Both the momentum behind FAU technology (currently in client testing) and the continued demand from smartphone manufacturers should help Largan to maintain its growth rate. This can be seen in its recent share-price performance, with the stock gaining 44.1% (in sterling terms) over the year to the end of May.
Arca Continental (Mexico City: AC) is one of the largest Coca-Cola bottlers in Latin America and has delivered consistent returns, gaining 22.4% (in sterling terms) in the year to the end of May. The brand itself provides a structural moat, with its pricing power derived from distributing one of the world’s most recognised consumer brands.
Additionally, marketing investment from Coca-Cola itself is at a level that would be impossible for Arca to replicate. This is complemented by geographic diversification across the US and Central and South America. A fragmented bottling market in Latin America offers Arca opportunities for expansion through the consolidation of smaller bottlers.
Brasil Bolsa Balcão (São Paulo: B3SA3), also called B3, is Brazil’s sole stock exchange. It integrates exchange, clearing-house and depository functions under one entity, making it structurally irreplaceable within the domestic market. Nearly all organised trading and over-the-counter registration of securities in Brazil flows through its systems. Diversification into data analytics and payments – via Trillia, B3’s internally formed data-analytics division, and the acquisitions of Shipay and CRDC – provides a buffer against cyclicality in exchange-traded volumes.
Brasil Bolsa Balcão is also competitive on a global scale, having overtaken India’s National Stock Exchange to become the world’s largest derivatives exchange by volume in 2025. High Ebitda margins, sustained returns on capital and Brazil’s growing retail-investor base underpin the long-term investment case. The shares have gained 33.2% in sterling terms in the year to the end of May.
This article was first published in MoneyWeek’s magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
