Week 24: Investors show continued interest in emerging markets


Week 24

Investors show continued interest in emerging markets

After a volatile few years, global investors continue to increase exposure to emerging markets (EM) as flows back into EM remain strong and encompass not only broad-based EM opportunities worldwide, through mutual funds as well as ETF’s, but also single country stock allocations as well as fixed income investments.

Emerging markets historically have been an important source of long-term growth potential and diversification, yet years of weak performance and volatility have left EM potentially underrepresented in many investor portfolios.

This has changed dramatically over the past two years and continues as investors increase their allocation in the face of superior stock performances fueled by higher comparative rates of economic growth and attractive valuations, which in many cases offer a substantial discount to more developed markets whilst at the same time promising higher growth rates.We note that the trend continues as EM debt and equity in flows have increased over the past year and at this stage show no signs of slowing down.

More recently traditionally risk adverse investors appear to be joining the stampede to EM, which we believe has been supported by a substantial and encouraging reduction in volatility after a particularly volatile period for EM at the end of last year and through the beginning of 2017.

Of particular interest for EM investors is continued flows into both equity as well as bond funds across many of the larger economies in South East Asia, where China, Hong Kong, South Korea and Taiwan have all seen strong in flows and solid returns.

Historically, emerging markets have provided long-term growth and diversification benefits to investors..

And typically better value has been prevalent in EM with generally lower valuations being met with, in many cases, superior growth prospects over those of more developed markets. Of course, this comes with an increase in risk and therefore volatility however, historically this has generally resulted in superior returns for those investors who seek an appropriate amount of exposure into the EM sector.