Fidelity’s Rossi: Why EMs will trounce rivals in 2012

Fidelity's global CIO, equities, Dominic Rossi has forecast another difficult year for equity investors as we enter 2012 but believes emerging markets are set to come back into the spotlight.

Rossi said the eurozone debt crisis is entering its final phase, triggering a tough period for developed economies which will see very little capital growth from their equity markets.

In contrast, emerging market equities are set to become less correlated to their developed world counterparts, and will present opportunities for investors.

"The contrast between emerging and developed markets will become even more conspicuous in 2012 and investors should be buying emerging market equities now to take advantage of this trend and the area's cheap valuations," said Rossi.

"Over the course of 2012, investors will begin to reward their superior economic fundamentals and their better ability to recover from the slowdown in global growth.

"The headwinds in emerging markets are cyclical in nature rather than structural, so the case for investment is robust on a medium- to long-term view which will lead emerging markets to ultimately deliver better economic and stock market performance in 2012 than their overly indebted developed counterparts."

He added within developed equities investors should focus on quality defensive companies with stable and reliable earnings streams, which are paying high and sustainable dividends.

"In Europe, dividend yields are considerably in excess of their 15-year average and there are a number of equity funds which are targeted towards this particular income yielding section of the market; the income offers a measure of protection to investors against further market volatility," said Rossi.

"These companies are typically large, robust household names like Unilever, which may well prove to be a relatively safe place for investors to park some of their cash, when consideration is given to the mounting stresses in the banking system."