FTAdviser.com

Advertising

Investors should buy into emerging market equities despite the fact volatility is at an all-time high, according to HSBC Global Asset Management.

Alex Tarver, global emerging product specialist at HSBC GAM, said this rising volatility made the timing of entering or exiting the market extremely important.

"However," he added, "this is difficult to do effectively, and avoiding this asset class even in the short term can have a significant longer-term opportunity cost."

Research from HSBC GAM showed that missing only a few good days in the asset class over the past decade would have had a dramatically negative effect on returns.

Further, over the 10-year period to November 13, investors’ annualised returns would have been completely wiped out if they had missed the 20 best-performing days on the MSCI Global Emerging Markets index.

Investing for the full 10-year period would have given an annual return of 8.6 per cent, while missing just the top 20 days would have resulted in a yearly loss of 1 per cent.

If an investor missed even the top 10 days, the yearly return would fall to 2.2 per cent.

The research showed that the missed opportunities were even more extreme when looking at single country exposure.

Investing in Russia for the full 10-year period would have produced a 22.5 per cent annual return, falling to a loss of 4.3 per cent if missing the best 20 days.

Investing in Brazil for the period would have led to an annual gain of 16 per cent, compared with a 5.1 per cent loss if investors were out the market for the top 20 days.

Over the same period, investing in India would have produced a return of 13.1 per cent, compared with a 1.6 per cent loss discounting the 20 top-performing days, while an investment in China would have returned 4.2 per cent, compared with a loss of 12 per cent discounting its 20 top-performing days.

Mr Tarver conceded short-term risks remained due to concerns about slowing global growth and credit-related issues.

Emerging markets were also bearing the brunt of geopolitical fears, inflationary pressures, weaker commodity prices and a stronger dollar, he said.

“While there is clear evidence investors are shying away from emerging markets, this is probably one of the most attractive entry opportunities for investors with a medium to long-term view," he said.

"Their volatility is likely to continue in the near term, but it pays to be fully invested rather than trying to time the market."

Since June this year, HSBC had $86bn (£56.6bn) under management in emerging markets.