The allure of emerging markets can be hard to resist for investors who think they can get rich quick and are tempted by tales of double-digit growth in developing countries that turn into high-tech powerhouses overnight. Yet the truth is often far less exciting.
Economic booms rarely translate into bumper investment returns. Stock markets in emerging markets fell on average by more than two per cent last year, and over a decade returns are up less than 12 per cent.
In comparison, the FTSE All-Share Index went up 17 per cent last year. But there are rewards if you take a sensible approach and are prepared to wait.
Kathryn Langridge, manager of Jupiter Global Emerging Markets fund, says that although strong economic growth does not mean investors automatically make money, it is an indication that some share prices are likely to rise.
She says: ‘There are structural challenges for fragile economies such as Brazil, India, Indonesia, Turkey and South Africa, which all have big debts. But these are slowly being tackled and there are opportunities for investors who pick the right stocks. The key is to be patient and take a long-term approach.’
Langridge believes that a rising wave of middle-class consumers in emerging economies such as China and India will play a key role.
The growth in domestic demand for luxury brands in sectors such as electronics and clothing, plus demand for better banking and healthcare services, will be reflected in higher share prices for companies operating in these areas.
Her top fund holdings include South Korean firm Samsung Electronics – the world’s biggest maker of mobile phones – and Abu Dhabi-based private healthcare provider Al Noor Hospitals.
Langridge has 21 per cent of her portfolio in consumer services and 15 per cent in technology. She also says the latest figures from the World Bank support optimism for the emerging market sector. It forecasts 5.3 per cent growth for developing countries this year, more than double the 2.2 per cent expected for developed nations.
Allan Conway, head of emerging market equities at top investment house Schroders, also believes that emerging markets offer investment opportunities. He says: ‘The so-called BRIC nations of Brazil, Russia, India and China lie at the heart of the emerging markets investment story. So any investment should naturally have exposure to companies based in these countries.
‘But don’t be lured in by other acronyms, such as MINT – Mexico, Indonesia, Nigeria and Turkey – as these are little more than marketing gimmicks.
‘By not being country-specific and putting your money into a broadly invested emerging markets fund you can spread the risk. The managers of these funds have freedom to stock pick across the globe.’
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