Why Income Investors Can't Ignore Emerging Markets

Emerging markets have increased dividends by approximately 312% since the start of 1997 versus just 159% across the global index

Cyrique Bourbon 24 February, 2017 | 8:34AM
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After a volatile 2016, emerging markets continue to offer potential positive performance as well as pitfalls. Despite often being represented in portfolios by a single fund or portfolio allocation, emerging markets are a huge and diverse investment area. In terms of size, emerging and developing economies account for approximately 85% of the global population and 55% of global output when adjusted for purchasing power. They have also accounted for more than 80% of global GDP growth since the 2008 financial crisis according to the International Monetary Fund.

From a diversity perspective, the MSCI Emerging Markets index comprises 832 companies from 23 countries with a market capitalisation of $3.9 trillion. Nowhere else can an investor find exposure to a Russian bull market – up 59% in 2016 – and a slumping Mexico – which fell 9% – in the same year. It is therefore somewhat foolish to consider these markets as a single block and expect to develop a coherent outlook.

Furthermore, investors must remember that they do not invest in economies but rather in the securities of companies and governments. Evaluating investments in this way can highlight both threats and opportunities within the broad universe of options. While many commentators are enthusiastic about the value in emerging markets at a global index level, in reality, these value-driven opportunities appear to be concentrated in a small number of markets.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Cyrique Bourbon  is multi-asset portfolio manager for Morningstar Investment Management EMEA