How can investors think more strategically about emerging markets?
During my over two decade career studying and investing in global financial markets, I've had the opportunity to travel across the world and experience first-hand the extraordinary economic, social, and financial transformation in emerging markets since the turn of the century. Traveling from JFK airport in New York to the glistening Changi airport in Singapore, for example, feels like a journey forward in time.
Our recently published white paper invites investors to look past the challenges emerging markets are experiencing this year and view them from a broader perspective.
As we highlight in three key messages, we believe that through a steadfast, even-tempered approach, one can reap the benefits of the growing investment opportunities offered by the world’s most dynamic set of regions.
First, whether they decide to invest directly or not, investors are increasingly exposed to emerging markets' economic, financial, political, and even cultural sphere of influence.
Emerging economies are now responsible for 60% of the world’s GDP and over 70% of global GDP growth. While a large component of this structural transformation owes to China, countries like India, Brazil, Vietnam, Indonesia, and Russia have also seen dramatic change. This process of convergence is still at an early stage, given that the per-capita incomes of even the largest emerging economies are still only a fraction that of the developed world.
Second, the way to think about emerging market investing in the next 10 years should differ from that of the past decade.
The amount of outstanding emerging market debt, for instance, has grown, with issuance in local currencies far outpacing issuance in hard currency (i.e., US dollars). And in popular emerging market equity benchmarks, the technology sector dominates with a 30% weighting, double the weight of the materials and energy sectors combined – the exact opposite of the situation a mere 15 years ago.
And third, while tactical asset allocation can take advantage of bouts of volatility, emerging market exposure should be seen as strategic in nature.
Despite all the volatility and large drawdowns in emerging market assets over the last decade-and-a-half, the inclusion of these assets in a buy-and-hold, strategic global portfolio would still have improved the risk-reward balance, provided exposure was diversified across corporate and sovereign bonds, equities, and currencies.
Our white paper illustrates the demographic, social, economic, and financial change in emerging markets over the last two decades, and derives implications for portfolio strategy. We have always argued that emerging markets represent a long-term story with a positive trajectory. Through numbers, this paper reaffirms that story and lets the figures speak for themselves.
Explore more emerging markets insights on our website.
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USA ,Switzerland and Singapore Work Experience ITIL Certified Application Support , Site Reliability Engineering SRE Middle Office Lead having extensive experience with Major Banks and financial Institutions of World.
6 年Detailed and comprehensive analysis ! What are key challenges in EM , any fault lines ?
Osiris Asset Management AG
6 年EM is 12% of the MSCI World so either you have a 20%-24% allocation and it has some impact or you have the classic 12% or none if you prefer MSCI World DM. But allocating 14% or 16% rather than 12% with a tactical view for few years will over the long run makes no difference it is a conviction market call. Now is probably time to go from 12% to 20%, we will get the answer in .....2025.
Osiris Asset Management AG
6 年Long EM - short USA RV trade ??
Strategic Advisor to Csuite
6 年Your analysis enables billion dollar+ fund managers sleep peacefully at night:)!