The investment case for global emerging markets (GEMs) is well-established: favourable demographics, robust GDP growth, and the potential for portfolio such a varied spread of countries and sectors.
However, these factors have often failed to translate into superior investment performance compared to developed markets like the S&P 500 Index. This discrepancy may arise from investors viewing GEM equities as a homogeneous investment universe, which does not reflect the full opportunity set available to active investors.
This perception could be due the way index providers characterize the asset class. Michael Bourke, Head of EM Equities, argues that the MSCI EM Index does not reflect the full opportunity set available as China, India, Korea, and Taiwan represent three-quarters of the index.
In reality, GEMs are far more diverse, with regions like the Middle East, Latin America (LatAm), and South Africa offering unique opportunities. The divergence across the EM universe, combined with share price volatility, can provide plenty of opportunities for active investors.
Navigating the landscape of EM debt and equity markets
We believe the EM debt and equity markets offer significant diversification opportunities but require a nuanced approach due to their inherent differences and complexities. The EM debt market, which has grown rapidly in recent years, presents varied opportunities across countries and regions.
Michael Talbot, Fixed Income Investment Specialist, notes that each country is highly unique, with their respective economies driven by idiosyncratic factors. Even within regions such as LatAm, Asia, and Sub-Saharan Africa, there is often little commonality. Moreover, the GEMs business cycle does not always follow that of developed markets (DMs) and currencies and regions might perform independently from one another. These differences highlight that EM bonds can potentially be a diversifier from DM assets.
The diverse nature of the EM equity universe also suggests that simply investing in an overall GEM equity tracker fund may disappoint. Having the flexibility to discriminate and construct their allocations accordingly could help investors achieve long-term success; it could also help investors to navigate the volatility that is often associated with EM and seize the opportunities that arise.
Brought to you by Investment Week in association with M&G Investments. By clicking "Click to Read More" you agree to the data protection statement below.
DATA PROTECTION STATEMENT
Your privacy policy – please read carefully:
We set out below how and the basis under which we, Incisive Media*, will communicate with you. In our Privacy Policy we explain how we may use your data.
For subscriptions, events, sponsored content and resources, we will use the lawful basis of 'legitimate interests' and we will use the contact details supplied to us to market to you regarding your trial or subscription, reader research, events and other related products. You will always be offered the option to change your contact preferences. Where you request a whitepaper or content published by one of our third party partners or attend a sponsored event which Incisive Media hosts, we will identify the third party or sponsors to you at the time and then pass on your contact details to them. They will contact you directly and their use of your data will be governed by their own privacy policy. Events may attract additional sponsors after bookings have opened and after the date you have signed up to attend, but we will identify all sponsors to you by email before the event.
