Published: September 28, 2010
Domestic demand and strong balance sheets outshine Western economies.
The case for investing in the emerging markets is “compelling”, according to Baring Asset Management.
James Syme, the firm’s head of emerging market equities, says that investors should consider increasing their emerging markets exposure given that valuations are still below their historical average trading levels.
He adds that the market is back to the valuations it saw in 2002 at the start of the five-year equity bull run and almost at the levels reached during the Asian-Russian crisis at the end of the 1990s.
A major factor in creating a positive outlook for emerging market equities is domestic demand. “These regions are no longer dependent on exports to developed markets, but rather, on the spending power of their own expanding middle classes,” Syme says.
“Unlike Western markets, burdened with huge pension liabilities from an ageing population, the populations of the emerging economies are young and growing, and contributing to GDP growth,” he adds.
Another factor for the continued growth of emerging economies is their ability to borrow money due to strong sovereign balance sheets. “The sovereign debt to GDP ratios of developed markets is around 100%, while emerging economies have ratios of just 40%.”