Fund managers have changed their thinking and allocated 30% more money to emerging markets since stocks crashed in the downturn.
New research survey of 40 global investment funds by investment research specialists EIRIS shows a quarter of investors have a higher exposure to emerging markets, and 10% have entered the sector for the first time in the past 12 months.
Investors, they say, cannot afford to ignore emerging markets because of the impact they will have on world trade by 2020, when:
- Emerging market GDP will surpass developed market GDP for the first time
- 85% of the world’s population will live in emerging markets
- Consumer spending in India and China combined will treble to US$10 trillion
Trends like lack of natural resources, climate change and human rights laws are expected to have a significant impact on these markets.
Brazil and South Africa lead way
The research also looked at corporate performance and disclosure environmental, social and governance (ESG) in these markets and found:
- Stock exchanges in Brazil and South Africa have overtaken those in the developed-world by devising advanced ESG listing requirements, sustainability indices and other products to drive disclosure
- Governments in Brazil and South Africa lead on initiatives urging corporate ESG performance, while China, India, Turkey, Mexico and Hong Kong are making inroads as well
- Poor corporate ESG disclosure is the top challenge to emerging market development with 78% of investors
- Investors are demanding ESG research on governance, environment and international norms, like human rights and corruption
- Environmental issues, compliance with international norms and corporate governance are just as important in emerging markets as they are in developed ones
Investor attraction
Josh Brewer, report author and head of financials and technology team at EIRIS said: “The term ’emerging markets’ is increasingly outdated, especially when applied to huge markets like China – the second largest economy in the world. South Africa and Brazil are leading the way with ESG initiatives which developed markets could well learn from”.
“Lower returns and increased risk and volatility in developed markets have potentially resulted in a recalibration of risk/return ratios that make emerging markets more attractive to investors. Our report highlights the enormous investment potential which emerging markets offer, but also the significant ESG risks that need to be addressed by investors into these markets.”
