New opportunities in Emerging Markets

4 November 2019 – CAMRADATA has published a new whitepaper entitled, Emerging Markets: A World of New Possibilities which examines the investment opportunities in Emerging Markets and shares insight from Asset Manager, Consultant and pension fund managers who attended a recent roundtable on Emerging Markets.

The roundtable participants included, Amundi Asset Management, Mackenzie Investments, RWC Partners, Mercer, Redington, Transport for London, MRJ Investment Advisory and RisCura.

The roundtable began with a question from Aniket Bhaduri, a senior consultant with Mercer who asked the panel: “What is the relationship between economic growth and stock market returns?”

This threw up many questions on the foundations of strategic asset allocation; how managers (and consultants) derive expected returns; and country versus company influences, which the panel then discussed.

The panel also considered benchmarking, the anomalies in classifying Emerging Markets and ended with a discussion about the anomaly of China – a country whence equity investors have not enjoyed great returns commensurate with its economic growth.

Sean Thompson, Managing Director, CAMRADATA said, “Historically many investors have had a heavy home-country bias, tilting their allocations towards the familiar. However, through education and the opening of minds and borders, this bias is shifting and enabling opportunities where companies aren’t viewed purely on their current status, but how they might look in 5 to 10 years from now.

“Emerging market countries are potentially better positioned today to withstand increasing funding costs of debt, as a result of improved external imbalances and a more stable debt profile. Furthermore, public debt levels in some emerging market countries could be said to look more favourable when compared to developed markets.

“Our roundtable set out to look at how emerging markets are becoming masters of their own fate and how investors can best enhance investment opportunities across the equity, debt and small cap spectrum.”

Key takeaway points were:

  • Generally stock market wealth had followed emerging economic growth, with the notable exception of China. For post-industrial, rich nations, the theory is no longer relevant.
  • There are complicating factors to consider in Emerging Markets. For example, over the last ten years the GDP of Emerging Markets has doubled, but investors could be robbed of years of bountiful returns by currency falls overnight.
  • Emerging Markets equities and debt have delivered similar returns but there is a compelling entry-point to EM equities today after a decade of poor returns relative to developed markets.
  • Local knowledge was essential to invest wisely in China and avoid the pitfalls.
  • China, like Japan before it, is likely to then merit its own allocation (and index) within capital markets.

Sean Thompson, Managing Director, CAMRADATA concluded, “Asia is a particular focus in the emerging spectrum, powered by the twin powerhouses China and India, so it was fitting that our panel ended by discussing China and what the opportunities could be for investors in the future.

“With most of the world’s population living in emerging markets, most of which are very rapidly becoming “consumers”, we are probably on the cusp of a high octane new industrial revolution on a scale the world has not yet experienced. For investors this will present both opportunities and challenges.”

To read more about the opportunities in Emerging Markets download the white paper, click here