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Emerging markets to see substantial growth

By Benjamin Chiou

Date: Sunday 19 Dec 2010

Political instability among developed Western nations has prompted investors to adjust their weighting to the emerging markets, with fund managers expecting next year to exceed the record inflows of 2010.

Around $84bn has gone into emerging markets in the year-to-date, according to Slim Feriani of Advance Emerging Capital.

That figure surpasses the previous record inflow of $83bn in 2009 even though the year has not yet come to an end, Feriani notes.

“2011 could be the year when the emerging market sector finally gets its well-deserved structural re-rating,” he says.

Bruce Stout, manager of Murray International Trust, adds that “2011 is set to be another sluggish year for developed market economies...The economies of Europe, UK and US will take years to balance their structural deficiencies.”

However “in emerging markets the picture is completely different with supportive economic fundamentals,” Stout added.

In Europe so far, the financial recovery has been “anaemic” despite diluted double dip fears of late, says Andrew Bell, CEO of Witan Investment Trust. Bell argues that the debt crisis means that “there are a lot of structural deadweights on growth in Western economies.”

“The impact has been to divert attention to emerging economies,” he added. “We have to take some gearing off Europe as they are struggling to find closure on this crisis.”

Witan has increased its portfolio weight on the emerging market, from 10-11% last year, to 17-18% currently, while 50-60% it had invested in the UK previously has been reduced to 30-40%.

Feriani says 80% of the world’s population are located in the emerging markets and coupled with positive structural changes to many nations’ urbanisation, industrialisation and education should mean that these countries become an attractive source of growth in the equity markets.

“It is no secret anymore that the balance of economic, financial and political power has shifted significantly in favour of emerging markets, with China in the driving seat,” he said.

Feriani highlights that the average GDP rate around the world is between 3-4%, whereas growth in the emerging markets currently lies between 6-7%.

He also said that the global abundance of liquidity, partly thanks to the US’s recent quantitative easing programme, has boosted trade in these economies. Preconceptions about these nations as being mainly export-driven economies, when in fact they have large sources of internal growth, are also changing.

"A lot of people have been in a state of denial about what emerging markets are about...The reality is far better than the perception which the average investor has."

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