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Why active exposure to emerging markets is as important as ever

“We are expecting different outcomes in different regions depending on the trajectory of the war, and what happens to commodity prices and food prices,” Greenberg says. “We are of the view that we are unlikely to see energy prices fall back to previous levels. So, I think there are short-term opportunities for some of these sectors.”

On the longer-term horizon, he says his team’s 10-year approach includes slightly more volatility in emerging markets versus developed markets from a performance standpoint, but also potentially higher returns. So while he wouldn’t recommend 50% of a portfolio to be held in EM stocks, he says they are a good diversifier that can potentially boost performance.

“I think as an investor you want to be a little measured and dynamic when weighted toward emerging markets,” he said. “If there’s a period like now where there’s probably some headwinds, you want to be a little less exposed to EM, and as things look better, you want to expose that to emerging markets.”

While high passive risk makes a lot of sense for developed countries where markets are efficient, Greenberg says that disparities between regions and countries within emerging markets can affect the ability to make calls at the country, region or even stock level. makes it more important. He further said that independent research and having a ground boot that can run on the factory floor and meet management face-to-face is key to uncovering investment opportunities in emerging markets.

Given the current volatility in the markets, he says the risk of underweight in emerging markets as a whole may make sense in the short term, although he says the allocation should not be zero in the medium to long term. Structural risk diversification and return growth for emerging markets makes sense from the perspective. Some of these countries have a growing consumer class, better demographics than some developed markets, and a material improvement in the quality and independence of their institutions.

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