Despite the seemingly endless problems in Europe, developed markets have been outperforming while Emerging market equities have been out of favor for many months how. But following a raft of new policy initiatives in the developed world, is it time to rethink? Below are a few reasons for a fresh view.
- QE3 has a new dimension – it’s open-ended.
- The dollar – By extension, QE in the US will likely lead to weakness in the US currency which leads to strength in emerging markets.
- Price – Emerging market equities, as an asset class, now trade at 22% discount to developed markets meaning its a good time to get in.
- Volatility – While developed markets have become more volatile, emerging markets have become less so, along with their economies.
Koesterich explains that although investors may focus on China right now, the attention may gear towards the US and its ‘fiscal cliff’ in a few months. A safe play could be to get the money out of the US.
Sure enough, sentiment seems to be changing fast according to recent investor surveys, such as one conducted by SocGen. This from Benoit Anne:
Overall, EM investors are now extremely bullish on Global Emerging Markets (GEM). While only 41.8% of clients were bullish towards GEM last month, now the percentage has picked up to a remarkable 84.4% for the near-term view. Meanwhile, only 8.9% of investors are now bearish over the near term, or considerably less than a month ago.
Developed markets are up 5% since September 5, while the MSCI emerging markets index gained 7.2%. Governments may be much more wary of letting their currencies appreciate rapidly since EM growth has been much weaker than when QE1 and QE2 got going.
Emerging Markets is where the growth is. With developed countries, their bond ratings are decreasing. Our on the ground managers aid in optimizing performance and heavily reduce risks of volatility by taking defensive measures such as removing funds from various stocks and industries. 80% of the world’s population live in emerging markets and their consumers are growing 3 times faster than the developed world. The logistics are there. Excel Funds got the 2012 Lipper Award Fund for the best fund over the last year in EM equities. The fund pays a higher trailer than other EM equity funds with great results. Why not invest with the best?
Written by Melissa W.