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Länder und Regionen

AI in emerging markets – a really intelligent investment option

July 5, 2018 - Michelle Fan, analyst global emerging markets - David Choa, portfolio manager Greater China equities

What it is and why it matters

Artificial intelligence (AI) – data-driven technologies inspired by how we feel, learn, reason and act – is transforming entire systems of production, management and governance. And its development is accelerating rapidly: 90% of the data used by companies was created in the last two years, according to US-based media intelligence software company Zignal Labs.[1]

Because AI is continuing to gain momentum thanks to the exponential growth in data processing computing power, it is enabling a greater pace of innovation in a wide variety of fields and is being increasingly exploited on a large scale in China and other emerging markets (EM).

Exhibit 1: What is AI?

AI 1

Source: Accenture Analysis

For example, it is providing efficient ways for Middle Eastern countries to diversify their economies away from an over-reliance on the energy sector. Oil producer Saudi Arabia has said that AI and big data will power this shift away from its dependence on oil revenue, underscored by its USD 500 billion NEOM smart city project due to kick off in 2020. Other projects include the use of algorithms to manage crown flow and computer vision to enforce seat belt wearing and spot traffic violations.[2]

In South Korea, AI has helped one leading pharmaceutical company to reduce its product development period from around one year to just four days. South Korea too is pledging billions of dollars to advance in AI and catch up with regional rivals China and Japan and reduce the lag with global leader the US.[3]

In China, which is seeing diminishing returns from an ageing population balance and from its capital investments, AI is providing greater productivity. For example, it is transforming e-commerce, providing a personalised shopping experience for hundreds of millions of online customers that has already led to a 20% increase in the sales conversion rate. AI is also sharpening the efficiency – and thus reducing the cost – of end-to-end supply chain management and logistics in China.

AI: a source of growth, quality jobs and investment opportunities

With the potential economic benefits of AI already clear, governments in many EM countries – including Russia, Hungary, Poland, the UAE and Saudi Arabia – are pursuing policies that are supportive of its further development.

There are, of course, still challenges facing emerging market economies as they seek to capitalise more fully on AI – such as the risks of automation and robotisation to traditional employment, the condition of many of their social and legal frameworks, and whether their media and mobile networks are open or closed.

But there is also – literally – a world of investment opportunities in AI-related industries and activities in China and other emerging markets, and these were discussed in greater detail by Michelle Fan and David Choa, senior members of BNP Paribas Asset Management’s global EM equities and China equities teams, in a recent webcast on this subject, which you can listen to here.

AI 2

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[1] Zignal itself uses artificial intelligence in combination with machine learning to detect, collect and analyse billions of data points in real-time from traditional, digital, broadcast and social media sources, processing digital content at a pace impossible for humans. Source: zignallabs.com

[2] See AI as the New Oil: Saudi Arabia’s $500 Billion Smart City on https://syncedreview.com/2018/05/17/ai-as-the-new-oil-saudi-arabias-500-billion-smart-city/

[3] See South Korea Aims High on AI, Pumps $2 Billion Into R&D on https://syncedreview.com/2018/05/16/south-korea-aims-high-on-ai-pumps-2-billion-into-rd/

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher than average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity, or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

 

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