Why developed market stocks may be the best way to play emerging market growth: Marcellus

Apple and Hermès have captured more value from China’s rise than local players, notes firm; Marcellus’ Global Compounders strategy up ~24% annualised since launch.

At a time when India and other emerging markets are outpacing developed economies on GDP growth, Marcellus Investment Managers is urging investors to flip the usual narrative: invest not where growth is happening, but where it is being captured.

In its July 2025 newsletter for the Global Compounders Portfolio (GCP), the firm makes the case that developed market companies, particularly global leaders, often monetise emerging market growth more efficiently than local firms do, delivering stronger shareholder returns over time. This, they argue, is a key reason investors may want to look past headline GDP growth and instead focus on value capture and business model strength.

“Fast-growing economies don’t necessarily produce the best-performing stocks. What matters is who captures the value from that growth,” Marcellus wrote.

To illustrate the point, the firm analyses two case studies: Apple and Hermès. Both headquartered in slow-growth Western economies, yet deeply intertwined with China’s three-decade-long economic expansion. In both instances, these companies outpaced not just local competitors but also the broader Chinese equity market, despite having smaller operational footprints in the country.

Apple: Manufacturing in China, capturing value globally

Apple’s manufacturing scale-up in China via Foxconn from 2002 onwards is a textbook example of how control over brand, product and customer and not geography necessarily, can lead to success. While both Apple and Foxconn saw revenues rise in tandem between 2002 and 2012, their value creation sharply diverged. Foxconn’s gross margins fell from ~14.7 percent to ~6.4 percent over that decade, even as it built out massive capacity and employed nearly a million people.

Apple, meanwhile, retained brand control and pricing power, compounding shareholder value at an annualised 25.7 percent in INR terms over the last decade, as per Marcellus data. Its ability to invest in China’s supplier ecosystem, maintain high product quality, and navigate local regulations without relinquishing IP or ecosystem control was central to this outcome.

Hermès: Selling into China’s elite

Similarly, luxury giant Hermès leveraged China’s rise in household wealth and not by chasing mass-market volumes but by focusing on ultra-premium customers. Over the past 30 years, while urban Chinese consumption rose nearly 25x, the MSCI China Consumer Discretionary Index showed little long-term momentum.

Yet Hermès, which maintains gross margins around 70%, outperformed dramatically by serving the top 1 percent of China’s affluent class. The company’s Asia (ex-Japan) revenues and margins expanded steadily, and its INR-adjusted returns over the past decade stood at 26.7 percent annualised, according to the newsletter.

“$100 of consumer spending does not translate equally across companies. What matters is pricing power, customer intimacy, and brand resilience,” Marcellus noted.

Implications for portfolio strategy

Launched in October 2022, Marcellus’ Global Compounders Portfolio invests in 25 to 35 high-quality, deeply moated global companies aligned with long-term megatrends. It is offered via SMAs (Separately Managed Accounts) out of GIFT City, with a minimum investment threshold of $25,000 for accredited investors.

Since inception, the strategy has delivered ~24 percent annualised returns in INR terms (net of fees and gross of taxes), comfortably outperforming the S&P 500 Total Return Index over the same period.

Marcellus argues that such a portfolio that focuses on developed market champions that extract value from emerging market demand is what offers a more effective and lower-risk way of gaining exposure to global economic shifts. Unlike emerging market equities, which are often volatile and politically sensitive, these global businesses combine stable governance, strong balance sheets and global optionality.

“It’s not where the growth is happening that matters most — it’s who is best positioned to convert that growth into shareholder value,” it mentioned.