Global managers target emerging markets

With Asia having been termed a global equities sweet spot in terms of the way it has emerged from the global recession, a new Lonsec sector review has pointed to global equities managers muscling in on turf previously dominated by global emerging markets funds.

The Lonsec Global Emerging Markets and Regional Equities Sector Review pointed to an 18-month-old trend of traditional global equities managers increasing their exposure to developing economies through either increased direct allocations or global firms with significant operations in emerging markets.

“This raises the question: Is it better to gain your emerging markets exposure through a traditional developed global equities manager, or via an emerging markets specialist?” the Lonsec analysis said.

The sector review made it clear that the fund managers were fighting over significant and rich turf, stating: “Asia has emerged from the recession with the strongest buy signal of any region.”

The review said Indonesia and India had been the standout market performers, rising by 117 per cent and 94 per cent respectively in US dollar terms last year.

However, the review pointed out that by the middle of this year, the rally in global markets had seemingly stalled, with investors unable to shake off lingering doubts about the global growth outlook and sovereign debt concerns hanging over equity markets.

The Lonsec review resulted in just four funds gaining the highly coveted ‘highly recommended’ rating: The Templeton Emerging Markets Fund, the TAAM New Asia Fund, the Aberdeen Emerging Opportunities Fund and the T.Rowe Price Asia ex-Japan Equity Fund. Of these, the Aberdeen and T.Rowe Price funds represented upgrades.

Looking at the sector overall, the Lonsec analysis acknowledged that determining an appropriate allocation to global emerging markets was not for the faint-hearted in circumstances where, over the long-term, emerging markets indices had delivered higher returns than developed global equities, but with higher volatility.

It suggested that investors should target exposure via well-diversified global equities funds, and recommended a broader global emerging fund as being a viable initial method of gaining exposure.