ONCE plagued by fears of debt defaults, currency devaluations and political instability, emerging markets are now an indispensable part of every reward-seeking investor’s portfolio.
That, at least, was the message from Marino Valensise, chief investment officer at Baring Asset Management yesterday. He said: “While we believe that the rally in equities is set for a pause and that the wider economy needs to play catch-up, it is emerging market equities that will offer the best returns.”
In Barings’ view, global emerging equities have outperformed developed markets in recent months and this is expected to continue. The asset manager says: “Any long-term investor should have a significant allocation to countries where GDP per capita is going up fast.” Equally, it believes that the rise of Chinese consumerism will, over the next decade, eclipse the US and drive the world economy. China currently has a 6.4 per cent share of global consumption and Barings expects this to grow to a massive 21.1 per cent by 2020.
A recent report from the McKinsey Global Institute on Chinese consumption notes that while China’s economy has grown the become the third largest in the world, it punches well below its weight in terms of consumer spending – its 1.3bn people consume in a year little more than a tenth of what 307m Americans manage.
Before the global economic downturn, China and its Asian neighbours were focused on producing goods for export to Western economies. However, with Western consumers tightening their belts, emerging market economies are having to turn to their domestic markets to soak up their production.
While investors might see this as a source of concern given the limited spending power of the Asian consumer at the moment, the McKinsey report notes that, on current trends, China’s consumption is forecast to make the country the world’s third-largest consumer market by 2020, growing at an annual compound rate of more than 8 per cent over the next 15 years.
WPP’s Sir Martin Sorrell noted only last week that the recovery in emerging economies was likely to be V-shaped as opposed to U for North America and an L for Western Europe. With this in mind, sharp investors are quickly weighting their portfolios towards emerging markets to take advantage of their more dynamic economies.