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Emerging market stocks are regaining popularity
Expect high growth rates
Asia in the focus of banks and investment companies
Emerging market equities have not been particularly popular for a long time, with returns lagging behind those of global indices. This asset class is now quite attractive. If the Swiss fund company Pictet Asset Management (AM) has its way, the highest equity returns could even be achieved here.
Emerging market stocks with a “lost” decade
As measured by the MSCI Emerging Markets Index, emerging market shares have gained around 76 percent in value including dividends over the past five years, which corresponds to an annualized return of 12 percent, as reported by the Neue Zrcher Zeitung (nzz). In the short and medium term, quite attractive returns were achieved, but in the long term the balance sheet looked less rosy in the past. If you look at the past ten years, you only get a return of 4.5 percent per year. Emerging market equities were in a sideways movement for a long time before the Corona crisis. Asian titles in particular have had a “lost” decade, as the experts at Pictet AM put it. Only after the crisis had subsided could they break out again. Investors also seem to have regained courage and are increasingly relying on this asset class again: In the first half of 2021, US $ 127 billion flowed into emerging market funds worldwide, as the fund company Legal & General Investment Management (LGIM) explains.
Expect high growth rates
The reason for this is likely to be the expected comparatively high growth rates in emerging countries. The International Monetary Fund (IMF) is expecting average economic growth of only 6 percent, which is only slightly higher than the World Bank’s global estimate of 5.6 percent. According to Tilmann Kolb, an expert on emerging markets at UBS, this is due to the Corona crisis. In the longer term, the dynamics will accelerate again, especially in Asia, because a strong and innovative base of industrial companies has been established there, the nzz reflects the assessment of the major bank.
Asia in focus
UBS is also including the stricter regulatory interventions by the Chinese government in its considerations. Although Chinese stocks have recently come under pressure due to these new regulations, this could have positive effects in the medium and long term and result in greater competitiveness, Kolb concludes. Therefore, for long-term investors who have little or no Chinese stocks, it is currently a suitable time to start. Kolb sees the greatest opportunities in cyclical stocks and value stocks, writes nzz. The experts at Pictet AM also recommend stocks from emerging markets in Asia in their analysis: “We assume that stocks from the emerging markets of Asia will be the asset class with the best performance over the next five years and expect average returns of around 11 percent per share Year in US dollars. Vietnam and India should do particularly well “.
In addition to stocks, many banks and fund companies are also positive about bonds from emerging countries. Pictet AM regards Chinese government bonds in particular as an attractive investment. The experts write that they have attracted positive attention in the past due to their relatively high returns and stability in difficult market phases.
“Investors would be ill-advised to ignore this part of the world,” said Pictet AM, referring to Asia. “We’ve been pretty much in the red on Asian stocks since the February highs and the way we look at it is that our framework tells us now is probably the best time to take risk in Asia,” also emphasized Mixo Das, Asia equity strategist at JPMorgan, in CNBC’s “Squawk Box Asia”.
Weak outlook for commodity economies
Meanwhile, UBS has less positive prospects for economies that are heavily dependent on raw materials. Specifically, the bank names Brazil, Russia and South Africa. These are currently still benefiting from the sharp rise in raw material prices, but this is not permanent, according to nzz, the bankers’ assessment. The cyclical nature and the high volatility of commodity prices made this sector appear less attractive in the long term.
According to numerous experts, it could definitely be worthwhile to look at emerging markets, especially Asia, and to buy stocks from these parts of the world.
Finanzen.net editorial team
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