Emerging markets re-emerging?

According to FE Analytics, one of the leading providers of investment data, Asia Pacific, excluding Japan, is the leading performer out of all the investment sectors this year, rising 10.1%. The global emerging markets sector has risen 7.8%. By way of contrast, the FTSE All-Share Index has been more or less flat over the year.

This has obviously caused interest amongst investors. For the past three years or so, emerging markets have been out of favour because of poor performance, certainly when compared with developed market funds.

All this sounds like good news but as an investor, where would you actually invest? There are wide variations in performance within the emerging markets sector. For example, India has seen a 24% rise, whilst the Russian markets have dropped by 12.4%, according to MSCI indexes. The Philippines, Indonesia and Brazil have all done well, posting double digit returns, whilst China has risen by only 5.5%.

So whilst stock market valuations might suggest this is a good time to enter these markets, conditions in the short term at least are likely to remain volatile. You will also need to know where to invest and/or which funds to consider. This is wheretalking to Kellands comes in.

Certainly in emerging markets, many factors need to be taken into account, not least political issues. With almost 30% of the MSCI Emerging Markets Index made up of state-controlled companies, it means the impact of government policy can be significant.

This has had a good effect in India, for example, where May elections installed the business friendly Narenda Modi as Prime Minister. The expectation is that he will implement reforms aimed at delivering more jobs, lower inflation and an economic revival. Because of this, the Indian stock market has rallied.  

Similar hopes exist in Indonesia, where newly-elected President Jokowi will be looking to repeat on a national platform what he managed to achieve while running Jakarta as the city's governor. Brazil also goes to the polls in October, with many hoping to see a second term for President Dilma Rousseff, who has already lifted millions out of poverty. She has indicated her second term would see more investment in housing, education and public health and this could have beneficial effects on the markets there.  

Obviously any reforms emanating from political change will take time to have an impact and will not be the sole factor influencing stock market performance. Having said that, elections can provide a boost to investor confidence and provide positive investor sentiment, as recently witnessed in India.

As always, the growth potential of emerging markets is an exciting proposition, but despite political change in some economies, it is likely to remain a volatile and somewhat unpredictable sector. Because of this, whilst emerging markets currently look attractive on some levels, it is vital that you take a long-term view if you are looking to invest. And getting investment advice would make sense.

< back to News & Views

News & Views

May 23, 2024

How could stealth taxes affect your wealth in 2024?

In the past four years, many aspects of your financial life may have changed.
Read more