Following on from poor performance in 2011, emerging markets (EM) equities delivered strong returns over the 2012 calendar year, with the sector expected to grow in prominence in coming years.
That’s according to Lonsec’s latest 'Global Emerging Markets and Regional Equities Sector Review’ which covered an investment research universe of 27 global EM and Asian equity managed funds.
“Performance during the first half of 2012 was dominated by lingering poor sentiment from European sovereign debt concerns and Chinese economic contraction,” Lonsec senior investment analyst Steven Sweeney said.
“An easing of these fears in the latter half of the year saw an increase in the demand for EM equities.”
The report pointed to the continued home bias of Australian investors, stating that an appropriate allocation to both global developed and EM equities is required to improve portfolio diversification.
Despite carrying heightened volatility relative to developed market equities, Lonsec stated that investors comfortable with the risk-reward scenario of EM equities may consider a tiered allocation to the asset class.
So-called 'frontier markets’ did not feature prominently within current product suites, but Lonsec said some fund managers have the ability to tap into this segment.
“Forever the hostage to risk appetite, the outlook for EM equities in the second half of the year remains clouded; however opportunities undoubtedly exist for contrarian investors, with the benchmark trading at an historically cheap level,” Sweeney said.
While Lonsec’s EM research coverage list continues to expand, Sweeney said EM equities should be treated as a play area for the casual day trading investor.
