View more on these topics

Emerging market forces

The last few months have been unkind to emerging markets. After a long period of outperformance, it was perhaps inevitable the asset class would pause for breath.

There have been two main reasons why the rally has stalled. The first is a growing concern about inflation and what central banks are going to do to stop it. Indian authorities recently tightened monetary policy in an attempt to tackle higher food and fuel prices, prompting a sharp sell-off in the country’s stock-market. China and Brazil have not been far behind.

The rising price of food and other commodities helped precipitate the unrest in North Africa and the Middle East and the rise in the oil price is further stoking inflation.

With improvements in developed market economies, investors are increasingly risk-averse, pulling money out of emerging markets in favour of their developed counterparts. In the five weeks to the end of February, emerging market equity funds suffered outflows of $21bn – a dramatic reversal since the latter part of 2010.

But there are many reasons to remain invested in the asset class. The market’s response to monetary tightening appears an overreaction. At this point in the cycle, the measures are exactly what these economies need to prevent pain further down the line. Interest rates in most emerging markets are low by historic standards and any increase should be seen as a move back towards more normal levels.

Much of the developing world is in robust financial health. Unburdened by deficits, many emerging market governments do not have to worry about austerity measures or budget cuts and have scope to spend their way out of the downturn – an option not open to the West.

This comparative lack of debt is mirrored in the financial positions of emerging market companies and consumers, providing a fillip to economic growth. GDP continued to power ahead last year at levels unthinkable by the standards of developed economies.

From an investment perspective, volatility is likely to persist in the short term. Investors remain risk-averse but markets have focused on the short term rather than on the fundamentals that will drive the market over the medium to longer term.

From this perspective, emerging market equities look well placed. Compared with prior financial crises, developing countries are in a much stronger position. Indeed, this time around, the world is relying on the likes of China and India as the drivers of global growth. As a result, the recent sell-off provides an excellent opportunity for longer-term investors.

Natalie Burnand is investment director of multi-manager at Swip



MP hits out at the FSA’s lack of age data

Treasury select committee member George Mudie has attacked FSA chief executive Hector Sants for not knowing what percentage of advisers are aged over 60. During a select committee evidence session on the RDR last week, Labour MP Mudie asked if the FSA has statistics on how many advisers are over 60 and how long they […]

UBS investigated over alleged Libor manipulation

Swiss bank UBS is being investigated by US regulators for allegedly manipulating the interbank lending rate Libor, the BBC reports. UBS says is has received subpoenas from the Securities Exchange Commission, Commodity Futures Trading Commission and Departments of Justice. These refer to submissions the bank made to the British Bankers’ Association, which sets the Libor […]

Main energy funds ‘not greatly exposed to Japan’s nuclear problem’

The two main energy funds open to UK retail investors do not appear to have significant holdings in nuclear power, which may limit their exposure to the ongoing problems in Japan. As fears of meltdown continue at the quake-hit Fukushima Daiichi nuclear plant in Japan, stocks in several nuclear-linked companies such as uranium miners and […]

Happy while you work

Well we’ve had scorching weather (yes even up here in Scotland!) and now the Euros 2016 are on – you can’t blame people for wishing life was just one big holiday.  With all these distractions it sometimes feels like work just gets in the way of having a good time! But sunny day skivers are […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm