• Two in five (41%) intermediaries believe their clients should increase exposure to emerging markets
• More than two thirds (70%) say they are ‘favourable’ towards emerging market equities with 55% also ‘favourable’ towards frontier markets
• Big fall in the number of intermediaries who think slowing growth in China will be the biggest global macro-economic challenge over the next six months
Two in five (41%) intermediaries believe their clients should increase their exposure to emerging markets, according to the latest Baring Asset Management (“Barings”) Investment Barometer. This represents a rise of eight percentage points from the previous Barometer in September last year, when a third (33%) thought clients should increase exposure to emerging market equities.
Barings’ research, which canvasses UK financial advisers on a quarterly basis, found that just 17% of IFAs think clients should decrease their exposure to emerging market equities, down from a quarter (25%) in the previous survey. More than two thirds (70%) of intermediaries are either ‘very’ or ‘quite’ favourable towards emerging market equities as an investment opportunity for their clients, with just 3% ‘very’ unfavourable.
Despite recent figures showing China GDP growth had slowed to a 14-year low, the latest Investment Barometer showed decreasing concern from the intermediary sector regarding the impact of China on the global economy. Slightly over a third (35%) of IFAs believe slowing growth in China will be the biggest global macro-economic challenge to investment growth in the next six months – down from more than half (55%) in the previous Barometer and from 38% in the respective study in 2012.
Rod Aldridge, Head of UK Wholesale Distribution at Barings, comments:
“Our research shows continued interest in emerging markets as an investment opportunity. Whilst the short-term outlook for emerging markets is challenging given the reliance on exports to the West and a general lack of supply-side reform, we strongly believe however that Asia and emerging markets will experience strong growth over the long-term.
“Despite some worries about China, annual GDP growth is still strong at 7.7%3 and the country is undergoing far-reaching reforms that we believe should help boost more sustainable economic growth over the long run. The good news is that China is becoming more accessible to foreign investors, and overall, on both a historic basis and versus the rest of the world, China remains very attractive in our view.”
Barings’ research also asked intermediaries to suggest how favourable they were to frontier markets for the first time. One in ten (10%) intermediaries said they were ‘very’ favourable to frontier markets while over half (55%) were either ‘very’ or ‘quite’ favourable. Frontier markets are economies that fall outside of developed or emerging market benchmarks. Examples include Argentina, Bangladesh, Kazakhstan, Mongolia, Nigeria, Romania, Saudi Arabia, the UAE and Vietnam.
Rod Aldridge concluded: “We are anticipating a very positive outlook for investors in frontier markets this year. Frontier markets are inefficient markets at an early stage of development, providing many mispriced investment opportunities, and we expect the drivers which supported markets in 2013 – potential for long-term structural growth combined with a low correlation to other asset classes – to remain intact.”