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More focused emerging market approach needed

emerging market investments

A more focused approach is currently needed with emerging market investments due to the difference in characteristics of the countries in the asset class.

An independent research and funds management firm has recommended investors take a more discerning approach to emerging market (EM) investments as the returns across these regions now vary greatly.

“Close to 70 countries can be put into the EM category. Within that group there’s a big divergence in underlying themes, fiscal and monetary policies, growth profiles and currency dynamics,” Banyantree Investment Group director Zach Riaz said.

“We prefer to look at emerging markets from the bottom up because of that divergence of themes and you need to really dig deep into what is important in these markets.”

According to Riaz, India is one EM country currently offering prime investment opportunities.

“If you analyse emerging market returns over the last 10 years, the MSCI Emerging Markets Index is up around 4 per cent or 5 per cent. Developed market returns have been higher. But if you look at India over the past 20 years, the MSCI India delivered a solid return of 8 per cent a year,” he revealed.

Outside of assessing pure returns, Riaz noted India may benefit from another geopolitical factor.

“One [issue to consider] is how much India will be the beneficiary of the ‘world versus China story’. We may see manufacturing and services moving to India from China,” he said.

ETF Securities head of distribution Kanish Chugh confirmed Riaz’s opinion about India being one of the best EMs in which to invest.

“Investing in India appeals to many investors right now. The Indian economy is forecast to become the third largest by 2030, according to research by Standard Chartered,” Chugh said.

“However, India’s market capitalisation represents less than 3 per cent of global equity markets. As such, the major emerging markets indices and many emerging markets funds include only a small allocation to India.”

As such, he suggested investors could boost their exposure to India via instruments with a more refined focus on that country as opposed to offerings with a broader EM index as their underlying asset.

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