Investors Need to be Selective in Emerging Markets

Many investors have often viewed emerging markets as a homogeneous asset class, despite the substantial economic, political, and geographic differences

T. Rowe Price 4 September, 2014 | 9:35AM
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Global equity investors are unlikely to lump such diverse economies as the US, Australia, Japan, Germany, Italy, or other European countries into one basket. Yet many investors have often viewed emerging markets as a homogeneous asset class, despite the substantial economic, political, and geographic differences.

In the six years preceding the global financial crisis, the MSCI Emerging Markets Index had a 29% annualised return, in dollar terms, compared to almost 20% for global developed markets. Remarkably, only two emerging markets had annualised returns below 20%, with 17 of the 25 markets in the index posting annualised gains exceeding 30%. In contrast, in the subsequent six-year period, emerging markets had an annualised return of -0.9%, compared to 3% for developed markets. Only half of the emerging markets managed positive returns.

However, the tide may be turning this year, with investors showing more selectivity after last year’s broad, indiscriminate sell-off. India and Indonesia, spurred by hopes new political leadership will bring renewed economic growth, and the Philippines gained more than 20% in the first half. Meanwhile, several other markets – including Russia, China, Chile, and Mexico – continued to struggle.

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T. Rowe Price  T. Rowe Price is a global investment management firm dedicated to helping clients achieve long term success.

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