UK investors stand to gain from accelerating growth in China and the emerging markets over the coming five years, new research has suggested.
In its report entitled Global Markets 2018: Breaking Down Barriers as Opportunities Evolve, Cerulli Associates said that rising incomes, improving financial literacy and an expanding middle class are continuing to drive investor opportunities in emerging markets and in China.
The report added maturing investment behaviour in India and aspects of regulatory change in China were also working in favour of the respective countries' stock markets.
Jorry Noeddekaer, lead portfolio manager for Polar Capital’s Emerging Markets team, said recent months have seen “a lot of noise” affecting emerging markets because of predictions of an escalating trade war with the US, but he believes that this is not a long-term trend.
“Chinese equities had taking a bit of beating over the past month to eight weeks, and emerging markets had entered a slight rough patch since March, due to slowing growth momentum,” he said.
“However, there are strong fundamental arguments as to why emerging markets remain attractive. I still think that the medium to long-term fundamentals are good, with some very interesting opportunities.”
Mr Noeddekaer explained that, in previous decades, emerging markets were affected due to spikes in the strength of the US dollar but noted that the dollar’s gradual strengthening this time around has meant that corporates and countries have been able to prepare.
He added that while emerging market economies had traditionally been driven predominantly by commodities, he believes that these economies today are “now more of a technology benchmark, rather than a commodities benchmark.”
Speaking to FTAdviser, Patrick Connolly, a certified financial planner at Chase de Vere, said: “Commodities are still hugely important to emerging markets, and that is not going to change any time soon. Yes, you could argue that the effect of the US dollar will gradually decrease over time, but at the moment, and for the foreseeable future, is it still a very prevalent factor.”
Mr Connolly added that while he believes all investors should have some exposure to emerging markets, they should not be over-exposed.
“There is huge, ongoing growth potential and an increase in the middle class, more domestic consumption and that hasn’t gone away. But investing in emerging markets always carries a high degree of risk.”