Fidelity says its evidence suggests many investors’ portfolios allocate only 2.3 per cent to emerging markets, despite the fact that these countries have increased their share of the global GDP to 30 per cent in less than twenty years.
Nearly half of the world’s 20 largest economies are in emerging markets. Of these, both Russia and Brazil are in the top ten, and the International Monetary Fund predicts China will have the third largest GDP by the end of 2008.
Fidelity executive director UK retail Peter Hicks says: “Now that China’s economy has overtaken that of the UK, Germany, and France, it is difficult to ignore the emerging markets story.
“But the changing economic realities make it worth rethinking traditional level of exposure investors have to these markets.”
Hicks suggests that investors consider allocating a larger portion of their portfolios to emerging markets, given the increasing importance of these countries. He recommends a weighting of between 10 per cent and 20 per cent as a more realistic option for investors who wish to take advantage of exposure to emerging markets.
He says: “Obviously there are risks with investments in emerging markets – corporate governance standards are in some cases lower than in the West and their equity markets can be as volatile as British banking shares – but over the longer term the performance of stock markets tends to be correlated with economic performance.”