Ageing population, near zero interest rates, desinflation risks, sluggish economies, geopolitical issues. Current bearish and unstable global outlook have been turning investors into extreme caution as per investment allocations. The majority has been adopting a very conservative bias in the wait of a renewed growth secular trend as we used to experience in the past . While this sounds pretty logic, the reality is all different as we may, actually, not experience similar growth paths in the future.
Emerging Markets influence
The rising power of emerging countries, driven by China, has been destabilising a well established order previously dominated by US and EU. Emerging countries are gaining ground, leading to a global redistribution game of economic powers in an increased interconnected world: any economical or financial event occurring in any part of the world will have both positive and negative spillover effects on the others. While this has always been the case, the effects are even more amplified due the increased level of global interconnections.
As a matter of fact, portfolios assets allocation have to be readdressed taking into account :
- A long-term views as many short-term hiccups will happen on the road;
- A geographical balance between developed and developing economies;
- Active management so as to quickly capture markets trends.
- Include some alternative investment features – infrastructures, commodities, real estate, etc.
Developed Markets opportunities
- Supported by high qualified workforce and leading expertise, developed nations have a definite edge in health, technological and construction sectors. These sectors will definitely be driven by a rising ageing population and growing need for infrastructure investments in emerging countries.
- Current wave of M&A deals over technological and telecom european corporates will also be supportive of greater stocks valuation in those sectors.
Emerging markets opportunities
- Although China entered into a “cool down” cycle and some other asian economies are lacking structure, economic reforms are on the agenda and will be supportive of a new growth cycle over the next decade. All in all, Asia remains one of the most active emerging continent and will remain the world’s fastest growing economy in 2015-16.
- Another region showing great promise is sub-sahara Africa, home to a growing middle-class as well as a rise of financial and services sectors.
- Even if Latin America’s growth has been negatively impacted over the last 2 years, improved governance and economical reforms are aimed at providing the continent with a new growth story. As such Mexico and Colombia are now considered as the new Latam tigers and should deliver above expected growth rates over the next decade.
All things considered, Higher market volatility will definitely change emerging markets investors by forcing them to look beyond their traditional markets (local, US and UE) and add more global positions / overseas niche markets. This greater volatility should also be seen as an opportunity for foreign fund managers to capture part of these new inflows providing products are properly adapted to this new investors profile. As such, balanced, multi-assets portfolios and active management are among the best ways to partially limit the effects of sudden redemptions, unavoidable when dealing with emerging investors, more particularly in a volatile market.