Are Emerging Markets in Your Growth Plan?
Why investors should consider emerging market equities as part of a long-term capital appreciation strategy.
Investors seeking long-term capital appreciation shouldn’t overlook the diverse growth potential of emerging market (EM)1 equities.
Individual investments come with divergent risk and return profiles, but the EM equities asset class has generally matured from a generation ago. Economic diversification, favorable demographics, and more stable economic and monetary policies have improved the breadth and quality of opportunities.
The Growth Opportunity in Emerging Markets
A faster pace of economic growth may create opportunities
According to the International Monetary Fund2, emerging economies are expected to achieve average GDP3 growth of 5.0% between 2018 and 2023, two and a half times that of advanced economies (1.9%) or the U.S. (2.0%).4 Higher expected rates of economic growth, driven by growing urban populations and expanding trade with both developed economies and other developing nations, could lead to stronger earnings growth for some EM companies.
Emerging markets are driving trends in global trade
International merchandise trade by type of trading partner (%)
Sources: Martin Currie and Statista. Statista sources: International Monetary Fund, World Bank, World Trade Organization.
Expanded opportunity set for active managers
With more companies to choose from, the MSCI Emerging Markets Index5 offers active managers a larger pool of companies than the S&P 5006 from which to seek growth opportunities at potentially attractive valuations. And those companies are located in 24 different countries, where of course business cycles can vary, potentially creating further relative value opportunities. What’s more, since emerging markets are not as widely covered by analysts as developed markets, an active, bottom-up stock selection approach may help identify long-term opportunities not currently recognized by the market.
Larger number of companies to choose from
Sources: Bloomberg and MSCI, as of March 13, 2018.
Many emerging market companies are large global businesses
More and more companies from emerging markets are becoming global forces, challenging multinational companies from developed countries with their innovative products and services. The number of EM companies that are among the world’s largest has quadrupled since the end of 1999.
EM companies in Bloomberg’s top 500 by market capitalization
Source: Bloomberg, as of April 30, 2018.
Emerging markets are rapidly becoming synonymous with innovation. Strong technical education, state support and growing Internet penetration have driven a surge in creativity.
Reducing trade barriers, improving capital flows, developing infrastructure or enhancing institutional frameworks are vital drivers of long-term economic and social change. We believe momentum from such reforms is key to the compelling structural growth story in emerging markets.
Connect with Emerging Markets’ Growth Potential
IMPORTANT INFORMATION: Past performance is no guarantee of future results. Performance shown excludes sales charges, if any. Had sale charges been included, performance would be lower. The "% Change" column(s), indicate a change in the Net Asset Value (NAV) or Market Price from the previous business day. All investments involve risk, including loss of principal. Please see each product’s web page for specific details regarding investment objective, risks, performance and other important information. Review this information carefully before you make any investment decision. Additional share classes and products may be available.
1 Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. These nations are sometimes also referred to as developing or less developed countries. Developed markets refers to countries that have sound, well-established economies and are therefore thought to offer safer, more stable investment opportunities than developing markets.
2 The International Monetary Fund (IMF) is an international organization of various member countries, and it was established to promote international monetary cooperation, exchange stability and orderly exchange arrangements.
3 Gross Domestic Product (GDP) is an economic statistic which measures the market value of all final goods and services produced within a country in a given period of time.
4 Source: International Monetary Fund, World Economic Outlook, April 2018.
5 The MSCI Emerging Markets (EM) Index is a free float-adjusted market-capitalization index that is designed to measure equity market performance in the global emerging markets.
6 The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S.
All investments involve risk, including possible loss of principal. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges.
The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, or a guarantee of future results, or investment advice.
Active management does not ensure gains or protect against market declines.
Equity securities are subject to price fluctuation and possible loss of principal.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
Diversification does not assure a profit or protect against market loss.
An exchange-traded fund (ETF) is a type of investment company that is bought and sold on a securities exchange. ETFs generally represent a fixed portfolio of securities, derivative instruments, currencies or commodities. The risks of owning an ETF generally reflect the risks of owning the underlying securities or commodities they are designed to track. ETFs also have management fees and operating expenses that increase their costs