The Emerging Market landscape has evolved significantly over the past few decades, creating a broader set of potential opportunities for investors.
An Emerging Market economy is often defined as an economy with low to middle per capita income that is generally fast-growing. We believe a closer look at Emerging Markets reveals unexpected and distinctive characteristics.
We believe Emerging Markets offer the potential for competitive returns over the long term, across a variety of countries and industries, and represent an important diversifier for investor portfolios.
Emerging Markets possess a number of attractive attributes that we believe may contribute to strong future growth. Here are some of the reasons we find Emerging Markets compelling for the long-term investor.
In our view, Emerging Market countries are better positioned today to withstand increasing funding costs of debt as a result of improved external imbalances and a more stable debt profile. As an example, public debt levels in some Emerging Market countries look favorable when compared to Developed Markets.
Emerging Markets have consistently demonstrated higher gross domestic product (GDP) growth than developed countries through past market cycles. Emerging Market growth is expected to outpace Developed Market growth for the foreseeable future.
The MSCI Emerging Markets Index has evolved since its 1988 inception. Today, it includes companies from 23 countries and 11 different sectors, providing investors with access to a robust opportunity set.
Historically, a growing middle class has been a strong indicator of a country’s future economic growth. As the middle class expands, companies may benefit from growing consumer purchasing power and shifts in spending patterns.
In our view, as education standards across Emerging Market countries rise and access to education improves, productivity, employment and competition may also increase. This could further drive income and economic growth, consumption and expansion of the middle class.
We believe the advances in and the availability of new technologies are transforming the business models of companies across Emerging Markets and creating new potential opportunities for investors.
We believe rising wage growth, a large concentration of the Millennial population, access to higher-quality education and the proliferation of and access to technology are creating a new consumer market driven by mobility and connectivity.
Despite signs of strength in Emerging Markets, we believe many investors are under allocated to the asset class--potentially missing out on long-term opportunities.
Many investors have a heavy home-country bias, meaning they tilt their allocations towards what's familiar. However, this bias may result in them missing out on a world of potential opportunity.
We believe many investors are under allocated to this asset class, despite the fact that Emerging Market economies contribute nearly one third of global GDP. This means that investors may be missing out on returns over the long term.
GSAM has been investing in Emerging Markets for more than two decades. We believe the question is not when to invest in Emerging Markets, but how. We have developed a broad suite of tools to help our clients answer that question.