Emerging markets, also known as emerging economies or developing countries, are nations which do not yet meet the standards of an advanced market. They are moving towards this status with rapidly increasing industry production, social development, and economic growth. As they develop, their involvement and influence on the wider global economy intensifies.
Emerging market economies are defined as an economy with low-to-middle per capita income. These countries have the potential for huge growth and, therefore, offer a high return for investors. However, they are also very high risk investments. Corruption, volatile stock markets and limited equity opportunities mean these economies are fragile.
While definitions and classifications do vary, the International Monetary Fund identifies 152 emerging market economies. Some of the countries widely accepted as emerging markets include many of the Americas, such as Brazil, Colombia and Mexico, as well as countries such as China and Russia.
As one of the UK’s leading investment managers, LGIM offers knowledge and experience that can bring real benefit to investors looking to understand economics, policy and politics in emerging markets.
Find the latest research on future paths of emerging markets around the world, from currency volatility to financial market analysis.
Our Asset Allocation team includes dedicated and accomplished emerging market economists and strategists whose clear focus is to assess the macroeconomic environment across the emerging world. Our economists then work with our team of strategists and portfolio managers to translate their views into what this means at a portfolio level.
Emerging market assets have long been a source of both potential profit and peril for investors. 2017 saw an incredible streak of capital inflows into emerging market equities, bonds and currencies. Whilst returns are still characteristically volatile, this historically maverick asset class has become more mature and resilient than ever before, as was highlighted during February's market sell-off.
The active versus passive debate consistently generates conflicting advice. The potential for active managers to side-step a falling market is one frequently cited factor. But have regional equity funds actually outperformed their respective indices during market corrections?
In a raging bull market there is always the temptation to buy the laggards in the hope of juicy returns from a 'catch-up' trade. Unfortunately, all too often you end up in a value trap instead: there’s a reason the stock has lagged and that reason often turns out to be annoyingly persistent. There’s no doubt that Mexico meets the laggard definition. But I would argue that there’s a strong case it could actually be a catch-up story.
On the face of it, things don’t look good for Mexico; and that’s reflected in asset prices. Its largest trading partner has threatened to scrap a free trade agreement that's been in place for almost a quarter century. In addition, a populist is leading in the polls to replace President Peña in the July elections. But look again and you might see a country potentially on the cusp of a spectacular comeback.
Middle Eastern investors have been cautious on risk for a while. I believe that if markets remain relatively calm, many will be tempted to deploy more cash.
How does emerging market debt typically perform after being downgraded from investment grade? Does forced selling lead to underperformance or is it all in the price by then?
In the decades leading up to the global financial crisis (GFC), global trade grew roughly twice as fast as global output. But in the five years before 2016, trade mostly underperformed activity, prompting many to call the end of globalisation. We indulged in those discussions ourselves eighteen months ago. These calls, it seems, were premature.