Despite a bounce in equity markets around the world, we believe Global Emerging Markets offer a potentially valuable investment opportunity.
A positive long-term outlook
Good long term fundamentals. Emerging Markets represent two-thirds of the world’s population, nearly half of its land-mass, over two-thirds of its foreign exchange reserves and onethird of its GDP, yet they account for only 12.7%1 of world equity by market capitalisation. It’s clear that the potential for growth is exceptional over the medium to long-term. Global Emerging Markets already contribute 71% towards global growth.
An increasing number of well-managed companies. Companies in Emerging Markets have become better managed and more transparent in order to compete for the increased investor cash flow into the region. Companies now have stronger balance sheets, are more profitable and increasingly committed to maximising shareholder value.
Diversification benefits to your portfolios. While the argument that Emerging Markets have decoupled from developed markets has been debunked, they do have a demonstrably important role to play in portfolio diversification.
Short-term growth potential
Resilience to the economic downturn. While Emerging Markets are not immune from the global economic slowdown they have less debt than develop nations. Economic reform has been a great help: the adoption of prudent fiscal and monetary policies by governments has fostered stability and growth.
Strong local demand bucks the global trend. Emerging Markets have stronger economic growth potential than their mature counterparts, supported by a young and growing population, durable consumer spending and a burgeoning middle class.
Global Emerging Markets will lead, not follow, the recovery. Global Emerging Markets have a much-reduced dependence on developed economies. Exports to other emerging economies are growing and these economies are also seeing increased spending and investment at home. While developed markets need to save more, resulting in muted growth, Emerging Markets have saved in the past and can now move to boost demand.
While Emerging Markets have rebounded, the long term outlook remains positive. Global Emerging Markets are still 40% lower than their peak in October 20072. Emerging Market equities are still good value.
1 Source: HSBC, July 2009
2 Source: Bloomberg, MSCI, 29 May 2009