The importance of emerging markets in the global economy has increased significantly, driven in large part by China. In 1980 emerging economies represented around 20% of global GDP. Today their share is 40%1.
Their capital markets have developed and deepened during this period, but their economic importance remains under-represented.
Emerging markets represent around 23%2 and 18%3 of tradeable equity and debt markets respectively, but only 13%4 and 6%5of the most widely-used equity and debt benchmarks. This anomaly cannot be ignored.
We expect emerging markets to continue to grow faster than developed economies. Industrialization, urbanization and middle class wealth creation should result in a deepening and liberalization of capital markets, so that over time they will better reflect the economic opportunity and importance of the emerging world.
Rising wealth levels within emerging markets should contribute to strong demand for emerging market equity and debt and lead to the development of nascent savings markets.
We believe emerging markets are inefficient and poorly researched.
State-controlled companies still represent a significant weight in emerging equity indices. The performance of these companies can be heavily influenced by sudden changes in government policy. An active approach which draws on deep local resources is better able to navigate such events.
Similarly, a great deal of qualitative input and local knowledge is required to identify the ESG issues which can create significant performance differential in emerging markets.
In emerging market debt, not only have passive ETFs tended to underperform their benchmarks, the most widely used indices are narrowly focused and exclude a large portion of the opportunity set. Active management provides access to the full range of emerging market debt.
We have almost 130 emerging market investment professionals in 14 locations worldwide covering a range of emerging market assets*. Our specialist teams have developed their own investment processes, free from a centrally-developed “one size fits all” approach. This means there is considerable intellectual debate between different teams, who will challenge and scrutinize each other’s views. Together with our deep roots in in many emerging countries, including a number of local-to-local business units, joint ventures and partnerships, we are in a pre-eminent position to better manage your clients’ investments and deliver the outcomes our clients require.
We do not just specialize in one area. Our expertise spans equity, fixed income, multi-asset, quantitative investment and private assets. This means we offer one of the broadest selections of strategies to help your clients capture the growth opportunity in emerging markets; there are options to suit a range of client investment goals.
Past performance is not a guide to future performance and may not be repeated.
The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall.
Emerging markets generally carry greater political, legal, counterparty and operational risk.
1Source: IMF as at end December 17. 2 Source: Factset, MSCI as at end of December 2017. 3Source: Bank of America Merrill Lynch Global Research, December 2016 4 MSCI AC World. Source Factset, MSCI as at end December 2017 5Bloomberg Barclays Global Aggregate. Source: FIA as at end December 2017
*Source: Schroders as at 30 September 2019
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