South Korea is also home to companies developing the next generation of batteries that are powering the green transition in electric vehicles.
For batteries, we expect continued structural growth driven by increasing EV penetration as well as an evolving technological roadmap to drive demand, which South Korean manufacturers are well placed to meet.
South Korea also has several free trade agreements in place with key trading partners including the EU and the US.
Korean battery producers also met requirements under the recently implemented US Inflation Reduction Act, which makes them better positioned than competitors to meet US demand.
The 'China plus one' strategy should further benefit South Korean suppliers across sectors as countries globally look to diversify their supply chain away from China.
A new global trade landscape
There has been some concerns over supply chains and rising geopolitical tensions, however with the increased focus on cutting-edge technologies, including AI and advanced semiconductor production, these are contributing to a reshaping of the global trade landscape.
This is leading countries to accelerate efforts to diversify their trade relations and protect their supply chains. The US, EU, and Japan are adopting a de-risking strategy by realigning their supply chains and strengthening bilateral relations with their allies.
We have identified countries such as South Korea, India, and Mexico as winners from this de-risking strategy. The list is by no means exhaustive, but we believe these markets are able to offer solutions to developed market manufacturers to diversify their supply chains.
Why now
At Franklin Templeton we cite three reasons why now is the right time for investing in emerging markets, what we call the three 'U's: emerging markets are under-owned, under-estimated and under-valued.
Investor portfolio allocation to emerging markets are below that suggested by the index weight, they are under-owned. Investors are under-estimating the potential of companies in emerging markets, including those that could be at the forefront of the fourth industrial revolution.
The impact of these factors creates a significant opportunity as many of these companies are under-valued, or trading below their intrinsic worth from a valuation perspective.
Andrew Ness is a portfolio manager of Templeton Emerging Markets Investment Trust
