The importance of emerging markets in the global economy has increased significantly, driven in large part by China. In 1980 emerging economies represented around 20% of global GDP. Today their share is 40%1.
Their capital markets have developed and deepened during this period, but their economic importance remains under-represented.
Emerging markets represent around 23%2 and 18%3 of tradeable equity4 and debt5 markets respectively, but only 13% and 6% of the most widely-used equity and debt benchmarks. This anomaly cannot be ignored.
We expect emerging markets to continue to grow faster than developed economies. Industrialisation, urbanisation and middle class wealth creation should result in a deepening and liberalisation of capital markets, so that over time they will better reflect the economic opportunity and importance of the emerging world.
Rising wealth levels within emerging markets are likely to contribute to increased demand for emerging market equity and debt and lead to the development of nascent savings markets.
We believe emerging markets are inefficient and poorly researched.
State-controlled companies still represent a significant weight in emerging equity indices. The performance of these companies can be heavily influenced by sudden changes in government policy. An active approach which draws on deep local resources is better able to navigate such events.
Similarly, a great deal of qualitative input and local knowledge is required to identify the environmental, social and governance (ESG) issues which can create significant performance differential in emerging markets.
In emerging market debt, not only do passive exchange-traded funds (ETFs) tend to underperform their benchmarks, the most widely used indices are narrowly focused and exclude a large portion of the opportunity set. Active management provides access to the full range of emerging market debt.
We have almost 120 emerging market investment professionals in 13 locations worldwide covering a range of emerging market assets*. Our specialist teams have developed their own investment processes, free from a centrally-developed “one size fits all” approach. This means there is considerable intellectual debate between different teams, who will challenge and scrutinise each other’s views. Together with our deep roots in in many emerging countries, including a number of local-to-local business units, joint ventures and partnerships, we are in a strong position to better manage your clients’ investments and deliver the outcomes our clients require.
We do not just specialise in one area. Our expertise spans equity, fixed income, multi-asset, quantitative investment and private assets. This means we offer one of the broadest selections of strategies to help your clients capture the growth opportunity in emerging markets; there are options to suit a range of client investment goals.
Any security(s) mentioned above is for illustrative purpose only, not a recommendation to invest or divest.
This material is intended to be for information purposes only and it is not intended as promotional material in any respect. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Opinions stated are matters of judgment, which may change. Information herein is believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.
Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. Exchange rate changes may cause the value of the overseas investments to rise or fall. For risks associated with investment in securities in emerging and less developed markets, please refer to the relevant offering document.
The information contained in this material is provided for information purpose only and does not constitute any solicitation and offering of investment products. Potential investors should be aware that such investments involve market risk and should be regarded as long-term investments.
Derivatives carry a high degree of risk and should only be considered by sophisticated investors.
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