Active Investors Start to Seize the Opportunity in Emerging Markets
Emerging markets collectively provide the engine of growth for the global economy. The world’s seven largest developing economies were half the size of the G7 developed economies in 1995, matched them by 2015 and are expected to be double their size by 2040.1 And while the stock market capitalization of businesses in emerging markets currently accounts for only 12 % of total world capitalization,2 this is set to increase: the value of quoted emerging markets companies has already grown tenfold over the past 30 years to more than USD 5 trillion.3
Yet institutional investors and discretionary wealth managers have not always been bold about taking advantage of the opportunities offered by emerging markets. In many cases, their allocations to emerging market assets have stalled in single figures as a percentage of their portfolios – below the levels that would materially capture the enhanced returns available and provide diversification benefits. The reasons for this range from the natural home bias of investors to concerns about elevated risk.
This is now set to change. Our recent research survey of 300 institutional investors and discretionary wealth managers globally suggests that investors plan to significantly increase their exposure to emerging markets over the next five years, in both fixed income assets and equities. Even in the coming year, amid the fallout from Covid-19, many investors plan increases.
1 Organisation for Economic Co-operation and Development
2 MSCI, April 2019
3 MSCI, as of June 2020
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