All the World's a Stage
Emerging Market Taking Front and Center
"Global emerging markets are on their way to becoming a core investment given the superior economic growth profile and the resilience shown during the financial crisis. The view of global emerging markets as a highly risky asset class is being disproved as these economies and financial markets mature."
— Daniel Tubbs, Portfolio Manager,
BlackRock Global Emerging Markets Fund, May 1, 2010
The Great Recession and related credit crisis of not so long ago profoundly reshaped the global economic and financial landscape. While no corner of the world was untouched, the resilience of emerging market economies has been striking. As investors re-examine their portfolios in today's new world order, it may be a good time to revisit the investment merits of emerging markets as well.
Indeed, this new backdrop is positive for emerging markets, with a bit of irony: The asset class traditionally perceived as "high risk" and "unsafe" has been the very one leading the global recovery since early 2009, and most financial pundits agree that the rapid-growth trajectory of these economies will continue over the next few years. Compare this with most industrialized nations, where economic expansion going forward is expected to be modest.
How much opportunity is there in emerging markets? According to Daniel Tubbs, Director and portfolio manager of the BlackRock Global Emerging Markets Fund, we've hardly scratched the surface.
"Though investing in emerging markets is not as 'foreign' a concept as it once was, these regions continue to be vastly underrepresented in investors' portfolios," notes Mr. Tubbs. To be sure, emerging markets companies now comprise just 13% of the $23.6 trillion global equity market capitalization — a small fraction given the growing scale and importance of emerging markets on the global stage today. "In our view, this leaves ample opportunity for advancement."
At the same time, the recent financial crisis has highlighted the relatively strong position of emerging markets — and exposed key flaws of developed economies. "The macro environment is very constructive for emerging markets," says Mr. Tubbs. "On the whole, they boast superior balance sheets, which allowed them to both enter, and emerge from, the crisis in far better shape than the developed world. While emerging economies are no stranger to spectacular booms and busts, we believe this time is different; lessons have been learned."
John Coyle, Managing Director and portfolio manager of the BlackRock Global SmallCap Fund, agrees. "We believe emerging markets are becoming the engines of global economic growth. Whereas future economic growth for many developed regions will be challenged by their structurally high debt at the sovereign and consumer levels, the strong capitalization and high consumer savings rates of emerging market countries should be a boon for expansion."
Mr. Tubbs adds that positive long-term demographics, such as a rapidly increasing working-age population, are another mainstay of emerging market growth potential. "This trend is driving the emergence of a huge domestic consumer base that will, in turn, spur private consumption growth. As a result, many emerging economies are expected to become less reliant on exports."
So, should all investors have some exposure to emerging markets? These two portfolio managers believe so. According to Mr. Coyle, exposure to these markets is "a perennially important component of a diversified global portfolio."
International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/developing markets or smaller capital markets.
* Archived articles are current as of the original date of publication.