After being a global economic engine of growth for many years, emerging markets appear to have stabilized following a recent period of slower growth. The long-term outlook for emerging market economies – supported by demographics and rising wealth – strongly suggests that they will continue to drive global economic growth for decades to come. For long-term investors, emerging market investments will likely provide a compelling opportunity for portfolio growth – and they’re here to stay.
Many emerging market equities are attractively priced based on historical standards. In fact, at a
27% discount relative to developed market equities, they are at nearly the biggest discount we’ve seen in a decade. While low valuations alone don’t necessarily point to better future returns, they do provide an opportunity for the asset class to outperform as fundamental factors improve.
While Canadian investments are important “core” holdings, unfortunately, when investors have too much of a “home-country bias”, this can lead to missed opportunities for exposure to the growth
and diversification potential available through international opportunities, like emerging market bonds and equities. Emerging market economies continue to rise in importance, accounting for about 50% of the world’s GDP and 60−70% of global economic growth. Key drivers of this growth relative to developed markets include favorable demographics, lower debt, urbanization, under penetrated credit and a growing middle class.
Many Canadians continue to believe that they receive “indirect” access to emerging market opportunities due to our economy’s resource-based nature in light of emerging market countries’ high demand for resources. This was true in the past; however in recent years, this relationship has weakened. Commodities experienced a decline in value and emerging markets growth continued to be fueled by other variables, like consumption and the emergence of the middle class.