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One of the pivotal occurrences this year for many investors in emerging markets must be the Brexit vote and the US Presidential election result. Certainly, I can say from speaking to institutional asset allocators in my research for our report, Investing in Emerging Markets Equities, Europe 2017, they came through as the top two concerns for the majority.

The main concerns around those events, taken into consideration, were:

  1. What kind of trade protection action would the US take?
  2. The impact of such actions on the US dollar, plus
  3. How would Brexit change the appetite for investment in Emerging Markets?

In short, the biggest challenge is political uncertainty; the vulnerability to the US is arguably lessened, and to some extent the bigger question is China and what is happening there with credit expansion.

Also, are Emerging Markets fundamentally good countries to invest in?

Another challenge voiced, is the difficulty in finding good active managers in emerging markets. Strategic investment in emerging markets add to a well-balanced investment mix, but will long be considered the more volatile segment of a portfolio. Finding approaches to reduce the volatility of returns is important, but essentially volatility is a by-product of the investment decision to add Emerging Markets to a portfolio in the first place

Lastly, the so-called ‘divide’ between the largest of the emerging markets and developed markets, is largely dissipating. How does an investor move to a world where there isn’t a distinction in growth patterns between the two and to actually reflect what is genuinely a global universe to identify solid managers who can be proactive to this development – that is something that investors will have to deal with in the next 10 years.

To read more views from asset owners who are currently allocating to emerging market equity sector, click to access and download the Investing in Emerging Markets Equities, Europe 2017 report. Alternatively, visit our website and subscribe to our range of Investment Strategy & Asset Class reports.


Blog post by Maire McGuire, Clear Path Analysis

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