Emerging Markets will Return to Favour

When it comes to financial markets and the economy looking backwards is much easier than predicting the future

Psigma Investment Management 15 January, 2014 | 10:22AM
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This article is part of Morningstar's "Perspectives" series, written by third-party contributors. Here, Tom Becket, CIO of PSigma Investment Management, considers the future of emerging markets.

From a markets’ perspective, 2013 was very easy to describe; it was a time to take as much risk as possible in the developed world and as little as possible in the emerging world. Starting with the bad news, emerging market economies and assets had a very difficult 2013. With China’s growth slowing and idiosyncratic issues across a surprisingly large number of countries – including Thailand, Turkey, and Ukraine, investors fled from developing nations’ stock markets, bonds and currencies.

This caused sharp moves lower in many assets, further unsettling skittish investors, who chose to repatriate their money back to the US, UK, Europe and Japan, much to the benefit of their stock-markets. Over the course of the year, the MSCI Emerging Markets Equity Index fell by 4%, whilst many bonds and currencies fell by greater amounts. In terms of relative valuations between emerging market and developed world assets, we are now at almost unprecedented levels, which we believe offer tantalising long term opportunities for patient investors. With growth in the industrialising world likely to remain healthy for the remainder of this decade, we strongly believe that emerging market assets will return to favour before too long.

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Psigma Investment Management  Psigma are part of the Punter Southall Group, a diverse financial services organisation offering a unique combination of actuarial, pensions consultancy, administration and investment services.

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