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What are the benefits of investing in Emerging Markets?
Investing in emerging markets has been a rich source of diversification and attractive returns for investors for the past 25 years when the asset class came into being.
Fast paced growth in many emerging markets In 1988 when the MSCI launched its first emerging markets index there were only 10 countries included, representing 1% of world market capitalisation. Today the MSCI Emerging Markets index contains 834 securities in 23 markets and represents more than 10% of world market cap (1). With so many countries now accessible, investors are spoiled for choice.
A diverse universe with steep variations among countries Emerging market countries vary dramatically not just in terms culture and economic growth but also where they are positioned in their economic and market cycles
Careful country and stock selection is essential Certainly, we have seen significant volatility in the last few years, due to both political and economic changes and there is no reason to expect this pattern to change. Therefore being selective and choosing the right countries, as well as the right assets within each region, is as important as ever.
Recent challenges Additionally, recently falling commodity prices and a rallying US dollar create particular challenges for emerging markets in 2015. That’s why it is essential for investors to work with an experienced and specialised fund manager whose local teams can provide insight and knowledge into what is going on inside the world’s emerging economies.
Why select emerging markets for your portfolio?
Stronger growth than in developed countries Emerging markets offer the potential for stronger earnings growth than developed markets. There are a number of reasons for this depending on which country or region is examined. In some countries, such as India, a large and relatively young workforce is driving growth. In other countries, structural reforms and much higher economic growth rates are leading to higher investment returns.
Strong consumer demand Oil prices halving in the last six months of 2014 put cash into the pockets of consumers around the world. This will, in our view, give a further boost to the emergence of a new group of consumers in many emerging markets. Along with a rallying US dollar, lower oil prices will also increase demand from US consumers, the world’s biggest block of final demand, for manufactured goods from exporters in Asia and South America.
Wide divergence among emerging economies Divergence between emerging economies is a big theme in 2015 (see chart 1 below which shows the distribution of returns among emerging markets in 2014). Investors need to identify those emerging markets that will best benefit from the current environment.
Chart 1: Dispersion of returns among emerging market equities in 2014.
Significant diversification benefits Emerging markets may offer significant diversification benefits to an investors’ portfolio. The low correlation between single country emerging markets and developed equity markets makes allocations to specific emerging markets attractive as a diversifier for investment portfolios. In addition, investors can diversify their investments across countries, regions and asset classes within emerging markets.
Why choose BNPP IP for emerging market investments?
BNP Paribas Investment Partners is one of the world’s leading emerging market fund managers with more than EUR 56 billion in assets under management in this field(1).
Locally based investment teams We have teams on the ground in 17 different emerging markets stretching from Jakarta to Moscow (as of October 2014). Our range of funds is broad and growing with regional as well as country-specific funds and equity, fixed income and balanced investment solutions. The combination of specialists on the ground in emerging markets and our global capabilities provides investors with access to the markets of the future.
(1) MSCI December 2014.
BNPP IP has offices in: • Mexico • Colombia • Brazil • Chile • Morocco • Turkey • Russia • Argentina • India • Malaysia • Singapore • Hong Kong • China • Korea • Taiwan • Indonesia • Bahrain