Offshore Capitalist

Near term correction possible, but emerging market investors need a longer term view

Bull markets favour riskier sectors, and emerging markets are no exception. According to data from AXA investment managers, during the past three bull markets since 1990 (the MSCI Global Emerging Markets inception date is 31 December 1987) emerging markets have returned on average 39 per cent, six months after the market trough, compared with 30 per cent for the MSCI Europe. This time around, emerging markets have outperformed European markets by an even wider margin.

Robert Pemberton, investment director at wealth manager HFM Columbus, says that while there is a secular shift in global growth to Asia and the emerging world, valuation levels are now looking stretched leaving the markets vulnerable to a sharp near term correction. He adds: “Also remember that emerging markets are a ‘high beta’ way of investing in equities. Taking a longer-term view however, we would expect emerging markets equities to produce higher returns than developed markets and as a consequence these form a part of most of our investors’ portfolios.”

The experts agree that ultimately the emerging markets story is a long-term one, and those who have missed out on the recent rally, need not despair too much.

“The emerging market story is here for at least another 20 or 30 years so a six or nine-month rally does not mean investors have entirely missed out. I would however suggest that it could be worth doing a regular savings plan into the region in the event there are some corrections. Investors can pick up shares or units in a fund on the way down before a rally resumes,” says Meera Patel, senior analyst at Hargreaves Lansdown.

Justine Fearns, head of investments research at AWD Chase de Vere, agrees: “On a longer-term view the arguments around economic activity driven by consumer demand, infrastructure development and commodities all remain. We have all seen the numbers and they are difficult to ignore. So on a longer-term view, and with a healthy appetite for risk, yes, we are still positive on emerging markets.”

via Time to catch the ‘Emerging express’ – Investors Chronicle.

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