View more on these topics

World leaders

Despite global growth disappointment, the argument for investing in emerging markets remains persuasive

The global equities rally continued in October with emerging markets rising by 2.8 per cent, according to MSCI, while the market cap weighted MSCI Bric index rose by 2.4 per cent.

Markets were aided by the expectation of a further round of quantitative easing by the Federal Reserve, which arrived to the tune of $600bn – a move that was widely anticipated in light of continued sluggish US growth. Over the month, macro drivers also moved favourably, with oil prices rising 1.8 per cent, commodities up 4.8 per cent and the dollar down 2 per cent.

The equities’ performance dispersion among regions was low in October, with EMEA the best performer, ahead by 3.2 per cent, and Asia ex Japan the worst, up by 2.7 per cent.

In the Bric markets, Chinese equities rose by 3.9 per cent in October and outperformed in Asia. Robust third-quarter GDP data in China softened the impact of a surprise interest rate hike on concerns over rising property prices. However, India delivered the lowest rise, at 1.5 per cent, as output slowed following recent interest rate rises.

After enduring a period of underperformance, Russian equities emerged over the month as the best performing of the four Bric markets, returning a robust 4.9 per cent. The turnround was supported by the price of oil, which broke through the $80 per barrel mark, and also by the financial sector, following the news that the Russian government would privatise its remaining holding of Sberbank.

Bric equity markets and indeed global emerging market equities overall have rallied strongly off the sovereign debt crisis low in May this year, benefiting from a rise in global risk appetite and liquidity. Foreign capital flows into the asset class reached record high levels as growth in developed markets became a scarce resource and investors chased after yield.

The Bric economies have shown a degree of economic independence relative to the developed world

Given the level of global liquidity and lack of growth in the developed world, it looks unlikely that either asset price inflation or currency appreciation will subside in the foreseeable future. While QE in the West remains instrumental to fuelling the rally in Bric markets equities, too much easing could increase the risk of policy missteps to equity markets.

The Bric economies have shown a degree of economic independence relative to the developed world, helped in the main by an unprecedented fiscal stimulus in China and attempts to rebalance the world’s second largest economy in favour of domestic consumption.

But China cannot stand on its own forever and the risk is now that growth surprises to the downside in the US and the fiscally constrained EU.

Despite the near-term risks of policy missteps and global growth disappointment, I believe the underlying investment case for the asset class remains intact: earnings and asset valuations for the asset class are at five-year averages, meaning investors are not yet awarding Bric equities with a growth premium.

In addition, the earnings’ growth outlook for 2011, the third year of recovery from the global financial crisis, remains solid with growth, potentially, for the asset class reaching the mid high teens.

Alex Tarver is global emerging markets product specialist at HSBC Global Asset Management



Watch out for the CT scan

HMRC is taking a keen interest in corporation tax returns relating to arrangements for employee benefit trusts

Brokers will still have role on checking affordability

The FSA says brokers will still have a limited role to play in checking affordability under new mortgage market review regulations that place ultimate responsibility with lenders. At the Mortgage Business Expo at Olympia in London last week, FSA director of conduct policy Sheila Nicoll said it makes sense to give lenders the most responsibility […]

Government may dilute bank pay plan

The Treasury appears to be watering down proposals outlined by the last government for banks to publish more detail on their remuneration to staff, Citing City sources, the Guardian says the coalition is backing away from plans for banks to reveal the amount of people earning amounts in bands of £500,000 to £1m and then […]

Barclays to give automatic progress emails on Woolwich applications

Barclays has updated its IntroTrack service to automatically send email updates to brokers submitting Woolwich mortgage applications so they can track the progress of a mortgage application. Brokers receive email updates at six stages in the application process. The key stages are: application received, credit score completed, valuation survey completed, offer sent to customer, mortgage […]

2016 Global Survey of Individual Investors: How is investor behaviour rewriting the job description for financial professionals?

Trapped between expectations for near double-digit returns and strong apprehensions about investing in persistently volatile markets, investors worldwide are of the opinion that professional financial advice is worth the fee. But even though they believe individuals who work with a financial professional are more likely to achieve their goals, investors have a clear vision of […]


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