A holistic approach, to information sharing and analysis, flips the script on emerging market investment strategies
Emerging markets (EM) have gained traction in investors’ strategic asset allocation in recent years. While emerging markets still remain subject to phases of regional turbulence, their share in investors’ strategic asset allocation is set to continue to rise as the asset class can no longer be overlooked.
With strategic and tactical asset allocations being revisited, so should the traditional emerging markets perspective. Rather, investors should consider moving away from an “asset class” consideration for emerging markets to embrace a more selective approach to capture country, sector or even company-specific stories and to avoid major areas of risk. In particular, to best exploit emerging market opportunities, investors should rely on a strong understanding of the macroeconomic backdrop of each country. As EM countries are at different phases in the business cycle, with different growth and inflation dynamics, different vulnerabilities to external shocks, and with different central bank policy trajectories, the macro assessment of each country is paramount to not only identifying the most compelling opportunities, but also to avoiding areas where political risk goes together with poor fundamentals, which remains a very relevant issue in EM.
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