Standard & Poor’s is urging investors to review their exposure to emerging markets on the basis that current volatility in the sector is making them “less useful as a portfolio diversifier”.
S&P Investment Consulting head Simon Ibbetson said emerging markets “have continued to deliver impressive returns, backed by strong economic fundamentals and the commodity boom, but have also been subject to significant volatility in recent months.
“These are good reasons for investors to review and reassess their prospects for the future.”
New S&P analysis reveals the “long-term fundamentals of emerging markets are clearly different to those of developed countries, but the added volatility of investor sentiment may actually do little to smooth portfolio returns over shorter periods,” he said.
“In other words, emerging markets can provide some diversification benefits to investors who are seeking to expose their portfolio to a higher risk/return play on global markets over the long-term.
“However, if investors are seeking diversification to reduce portfolio volatility over the shorter term, emerging markets may be less effective.”
