High level data analysis can provide useful flags, but the real challenge is to understand the dynamics and key economic factors to create a much more detailed picture of whether GEMS (or any asset class) offer good value.
Aside from the huge geographical diversity, GEMs includes countries with very different domestic and public finances, external positions (external debt over GDP, etc) political environments and policymaking.
At a regional level, there are important differences. In emerging Asia, for example, the effects of a Chinese slowdown could present very strong headwinds. Several economies are highly leveraged, but lower oil prices are helpful as only Malaysia is a net energy exporter.
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The Middle East is still suffering instability through war and terrorism and oil exporters will likely grow slowly. As in other regions, commodity consumers will benefit but investment and trade flows are likely to remain subdued.
Latin America is a mixed bag with Venezuela and Brazil likely to remain in recession. Some countries may produce positive growth, albeit modest. For the commodity producers, the terms of trade (the ratio of export prices to import prices) remain unfavourable due to low commodity prices.
At a country level, a simple example is the domestic vulnerabilities and public finances of Hong Kong and Brazil. Hong Kong has much stronger public finances but has very high real economy debt, reflected by a very buoyant housing market, at 278% of GDP, with Brazil is less than half of that figure. There are at least a dozen other key measures to understand.
Looking at the long term, several GEMs enjoy more favourable demographics with younger populations and need to focus on creating long-term growth through higher productivity, through improving business environments and raising investment.
Shorter term, the spectre of slower growth in China and the possibility of tightening global monetary conditions will require all multi-asset investors to be very diligent when making strategic and tactical decisions.
Adrian Gaspar is a multi-asset specialist at Prudential Portfolio Management Group
Bull Points
• Investors who can afford to be patient and take a long-term approach should benefit from the asset class's underlying growth dynamics
• Such a broad asset class will always present pockets of opportunity, but success requires a structured, disciplined and patient investment process
Bear Points
• A hugely complex asset class that requires a lot of research and analysis
• A number of well-publicised risks - including China, oil prices and possible US monetary tightening - present headwinds in the short term
