Top-down management the key to driving emerging market equity returns
Managers who utilise a top-down country selection approach to portfolio construction are the key driver of returns in emerging markets, according to a Macquarie Funds Group research paper.
The research, Emerging markets — it’s all about the country, concludes that successful country selection is a significant factor in emerging market equity returns.
It tested the sources of emerging market returns across countries’ industries and stocks, concluding that investors would be wise to adopt a macro investment approach to emerging markets over a bottom-up approach.
Macquarie Bric Advantage portfolio manager David Dali said emerging markets are developing economies and thus may be susceptible to extreme movements in volatility caused by macro factors such as the fluctuation in a country’s gross domestic product, its ability to service its debt levels or its correlation to more developed markets.
“Regardless of the strength or weakness of a company’s fundamentals in emerging markets, the biggest single factor to weigh on the performance of a stock is the overall performance of the country in which it is listed,” he said.
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