Emerging Markets no longer homogenous

Outstanding returns from emerging markets may be a thing of the past; however investors have not lost faith in this asset class despite its recent poor performance according to Principal Global Investors. 

A report released today by the asset manager said investors have become more discerning as economies develop at very different speeds and emerging markets are increasingly considered a tactical investment opportunity. 

In forecasting the impact of the emerging and developed markets continued convergence, the report stated emerging markets are no longer seen as a homogenous group and, only those countries embracing a reform agenda are likely to continue to converge with the West, both structurally and financially. 

CREATE-Research chief executive Professor Amin Rajan, who authored the report, said market volatility and concern about the political will to aggressively pursue a reform agenda has made investors more wary about their previous 'buy-and-hold’ strategy in emerging market equities. 

“As a result, more investors view emerging markets as a tactical play,” Rajan said. 

He added neither emerging nor developed markets would return to full health until some root causes of global weakness and uncertainty are addressed, including the tapering of quantitative easing, slow deleveraging in the Euro zone, the “three-arrow” initiative in Japan and the credit explosion in China.  

“Reducing debt, strengthening public finances, promoting growth and boosting competitiveness are challenges which Governments across the globe must all find ways of meeting,” he said.