GLOBAL - Schemes should increase their exposure to emerging markets, fund managers claim.
They point out that developed markets have performed poorly during the past year with the MSCI World Index posting a -13.5% return and the S&P 500 down 12.6%.
But emerging markets have outperformed, with the S&P/IFCI Latin America Index returning 4.1%, the S&P/IFCI Emerging Europe Index 26.4% and the S&P/IFCI East Europe 55.3%.
Gartmore head of Pacific and emerging markets Philip Ehrmann said: “Valuations are highly attractive, prospects for corporate growth are much better than in developed markets, and improvements in corporate governance and macro economic management are stimulating investors’ appetite for emerging market risk.”
But despite the high returns, Standard & Poor’s head of European research James Tew believes pension funds will continue to steer away from further investment because of fears over political and economic instability.
Political tension in the Middle East, India and Pakistan and regions connected by the continued “war on terror” have all knocked investor confidence.
“With that background it’s difficult to encourage investors to come away from the bigger markets that he knows, or indeed money market or bond funds,” Tew said.
F&C Management’s joint head of emerging markets Jeff Chowdhry is more optimistic. He said that while individual emerging markets would always be affected by falling confidence, the current climate was ideal for funds which have yet to invest in the asset class.
Chowdhry added: “For emerging markets it’s almost a dream scenario, because if it’s too strong, people say we don’t need this asset class, let’s go back into IBM.
“If it’s very weak and in recession, people say they don’t want to in the risky asset class anyway.”
Here are key takeaways from our 2019 Asset Allocation Outlook on how we are positioning asset allocation portfolios in light of our outlook for the global economy and markets.
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