Institutional investors are turning to emerging markets in search of returns, according to a report by State Street Global Advisors (SSGA).
Eighty-four percent of respondents say their funds would benefit from higher exposure to the asset class, which is seen as relatively cheap compared with stock markets in the US and other developed markets.
The report indicates that many are already moving in this direction, with 75 percent planning to increase their allocations to emerging market equities over the next two years. Just 1 percent say they will downsize their exposure.
The report quotes one major investor respondent as saying: ‘Emerging market equities are cheap on a relative basis – we believe there is room for growth, and we can’t afford not to be in emerging markets.’
In addition, around half of respondents believe returns from the equity market will be substantially lower in the coming year.
‘There is a consensus that emerging markets are going to help investors get returns in the future,’ says Olivia Engel, CIO of active quantitative equity strategies at SSGA.
The report says an increasing availability of data and analysis based on ESG factors is improving the case for emerging markets.
Although corporate governance issues and a lack of quality performance information have very much been seen as barriers to investing in emerging market equities, the survey indicates that this perception is now changing. In particular, survey respondents indicate their belief that ESG research offers valuable insights to investors seeking to outperform – in both emerging and developed markets.
