Investing in small companies in emerging markets offers exposure to many of the fastest-growing businesses in rapidly growing economies. The market is vast and varied, made up of some 20,280 companies boasting a total market capitalisation of more than US$5.2 trillion and daily turnover of more than US$38 billion1. As a result, this under-researched and often misunderstood asset class can help to diversify an institutional investor’s emerging markets portfolio.
Developing markets have outperformed most other asset classes in the last decade, and the International Monetary Fund expects frontier markets’ gross domestic product to grow by 4.9% in 2018, ahead of the 2.3% GDP growth forecast for developed economies.2 Within the emerging-markets asset class, the largest and most successful companies are often organisations which export globally and make a substantial portion of their revenues from developed economies; by conrast, small caps are generally more locally focused and so over exposure to factors which make emerging markets appeal- ing, such as young populations and rising incomes.
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