Demographic and technology tailwinds are good news for EM innovators

Silicon Valley has long been heralded as the world’s centre for technological innovation. It can boast of being the birthplace of many of the world’s most recognisable companies. But we are standing on the precipice of change.

To be clear, this is not because of President Trump’s tariffs. It is a long-term trend and the result of increasing opportunities in emerging markets (EMs).

The case for investing in EMs is well established: rapid growth, favourable demographics, improving infrastructure and a deepening pool of truly innovative companies.

“The dominance of western companies, mostly American tech giants, has created a bit of a blind spot for investors,” says Mike Sell, manager of the Alquity Future World Fund. “But there is no shortage of internet-enabled companies coming through in emerging markets.

“Some really exciting businesses are being built in Asia, Latin America, Africa and the Middle East,” Sell says. “There is, not unfairly, a concern on risk and a potential lack of transparency, but this is where enhanced due diligence and close contact with companies helps us to spot overlooked opportunities.

“For the Alquity Future World Fund, our team primarily looks for companies that can capture secular growth tailwinds and benefit from domestic structural growth.”

Home market advantage

As domestic markets go, few offer the same demographic advantages as India. The largest population in the world, it has a young workforce and a burgeoning middle class. Household incomes are set to rise over the coming years, resulting in higher discretionary spending.

One of the companies we expect to continue benefitting from this tailwind is Ixigo. Founded in 2007, it markets itself as ‘empowering Indian travellers to plan, book and manage their trips across rail, air, buses and hotels’, while deploying AI to ‘help travellers make smarter decisions’.

“Having started life as a price comparison site for plane tickets, Ixigo has grown its reach across multiple modes of transportation and accommodation, diversifying into complementary sectors, creating a more complete offering,” says Sell. “By harnessing artificial intelligence, the company is enhancing its efficiency while also providing a more bespoke and seamless service for customers.”

Ixigo is not lacking in ambition, with 480 million people active on the platform last year, its target is one billion users. A big driver of this growth is the digitisation of bus and train networks, as well as an increase in travellers and the overall number of trips taken.

“In its recent results, Ixigo’s leadership team identified two areas for further investment, hotels and AI,” Sells adds. “They also highlighted key changes in two customer segments they believe the company is well positioned to benefit from.

“The first is aspiring middle class people from Tier 2, 3 and 4 cities who are using their growing discretionary income to pay for travel. The second is Gen Z consumers from big cities, who are tech driven and value experiences like travel.”

Sell adds: “The opportunity set within India is vast, and efforts by the government to improve the national infrastructure mean more, and better, routes opening up across the country.”

The company’s multi-year structural opportunity and strong leadership team, alongside its economic moat, were the primary reasons Alquity first invested in Ixigo in October 2024.

International breadth plus domestic depth

Whereas Ixigo’s mission statement is to ‘empower Indian travellers’, other EM innovators have taken a more international approach.

One such example in the Alquity Future World Fund is Singapore-headquartered technology company Sea. Founded in 2007, it operates across southeast Asia (and beyond) via three primary business lines: digital entertainment service Garena, digital financial services provider SeaMoney, and ecommerce site Shopee.

“The gaming business has historically been the engine driving its growth,” says Sell. “As well as developing its own games, Sea has an agreement to distribute mobile games created by Chinese tech giant Tencent, which is the single largest shareholder in Sea.”

Since it was established in 2009, Garena has built a footprint across more than 130 markets. In 2014, the company launched SeaMoney, a digital platform that offers a variety of financial services products, including banking, credit and insurance. A year later Shopee was launched, which provides consumers with ‘an easy, secure, fast and enjoyable online shopped experience’.

“Sea is a company with depth as well as breadth. It is harnessing multiple tailwinds across a huge number of markets,” Sell adds. “With Garena, the distribution agreement with Tencent, as well as its own development pipeline, has been bolstered by the worldwide interest and growth in esports. Add to this SeaMoney, which is offering a vital service to markets where an estimated 70% of people are underbanked or entirely unbanked.

“And then there is Shopee, which has gained significant traction across southeast Asia, most notably in Indonesia, the fourth most populated country in the world, and become one of the biggest ecommerce companies in Brazil.”

It was the prospect of Sea attaining a digital banking licence that an additional catalyst for Alquity’s investment. A licence was duly granted.

“We recognised that the growth in Sea’s fintech business was not being fully appreciated,” says Sell. “Additionally, the wider company was on the cusp of becoming profitable.”

Unleashing innovation

The success of both Ixigo and Sea, in common with many internet-enabled companies, is a direct result of the growth of mobile technology. Whereas a lack of physical infrastructure was once a hinderance, the boom in wireless technology has helped innovators overcome these hurdles.

From a single device, hundreds of millions of people can book travel, bank, shop and access endless forms of entertainment. Importantly, they can do this via local companies who have designed products and services tailored to their wants and needs.

“We believe that diversification and growth are the key attributes needed to successfully navigate the investment landscape,” Sell says. “The two companies above really encapsulate Alquity’s focus on long term, structural growth trends, such as digitalisation and demographics. Not forgetting, of course, companies that are primarily domestically focused.”

As a result of the massive underlying changes across emerging markets in recent years, Alquity’s ability to identify opportunities in a variety of countries has become even greater. There are, at present, 22 countries represented in the Alquity Future World Fund.

“This means we can ensure adequate diversification in a volatile world,” says Sell. “The underlying fundamental drivers of an Indian travel app and a southeast Asian gaming-fintech-ecommerce player are very different. They are also significantly uncorrelated to trends in the USA, UK or Europe.

“This has been our strategy over the last five years, and is not new for us, but is perhaps particularly pertinent given the second Trump presidency,” Sell adds.