Slower growth in emerging markets is making investors abandon strategies that treat emerging markets as a single bloc, according to a research report from The Economist Group, publisher of The Economist weekly.
Instead, investors are evolving different strategies, some passive and some active, for different markets in looking for higher risk-adjusted returns, The Economist Intelligence Unit says in its report.
For instance, investors are looking more closely at which emerging markets are more susceptible to changes in monetary policies in advanced economies.
Also, more investors are using single-country exchange-traded funds (ETFs), the report says, though it cites Mark Mobius, executive chairman of Templeton Emerging Markets Group, as saying the use of ETFs in frontier markets would be “a dicey and risky adventure”.
Mobius explains it would be difficult for ETFs to replicate an underlying index without causing an unwanted market impact.
Yet hedoes believe in frontier market opportunities, according to the report. He is also currently focused on opportunities in China and India.
“Volatility in local currency bond markets and slowing growth are two good reasons for investors to re-think how they approach emerging markets,” says Kevin Plumberg, the editor of the report.
“Indeed, taking advantage of fundamental differences between developing economies and using both active and passive strategies in emerging markets are among the ways that savvy investors are staying ahead.”
Local currency bond markets suffered last year on fears of US Federal Reserve tapering, but they have seen a turnaround in 2014, according to the report, which is entitled “Global challenges in asset management: Emerging markets shift gears”, is based on two webinars with investment experts this autumn and sponsored by the Islamic Finance Marketplace of Malaysia.
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