Morningstar has released its Sector Wrap-Up for Asian equities and emerging markets equities funds, covering 18 strategies, nine in each asset class.
Key Findings
We gave only one of the 18 Asian equities and emerging markets equities strategies we assessed the highest-possible Analyst Rating of Gold – Colonial First State Global Emerging Markets Select. We designated three Silver (Aberdeen Emerging Opportunities, Arrowstreet Emerging Markets, and Lazard Emerging Markets), and one Bronze. Aberdeen Asian Opportunities and Platinum Asia were designated Silver among the Asian equities funds.
Many investors expect strong performance from Asian and emerging sharemarkets, given their favourable demographics, typically healthy fiscal positions, and positive economic prospects. However, so far there has been little clear evidence of any sustained link between these macroeconomic characteristics and sharemarket performance. Sharemarkets may have already priced in future expectations for economic growth.
The relationship is stronger when examining future GDP growth expectations and sharemarket performance. The difference is the perceived impact of wealth effects. This is important in the context of examining emerging markets, given the effect of the rising middle class across the developing world.
Although a growth investment style would appear logical given the favourable dynamics and above-trend growth expectations, value-style investing remains fruitful in Asia and the emerging markets. Focusing solely on blue-sky companies has hurt some fund managers and their investors. The fund managers we’ve designated Morningstar Medallists typically focus on sustainability and corporate governance, generally eschewing the hot sectors.
Investing in Asia and the emerging markets should not necessarily be limited to equities. Emerging market debt can also provide a potentially attractive investment and portfolio diversification proposition. Many emerging market nations are migrating to investment-grade status, having developed more robust national balance sheets since the late 1990s.
However, implementing dedicated emerging market debt exposure remains difficult for Australian investors and advisers. This is commonly achieved through a global fixed interest allocation. We expect opportunities for dedicated emerging market debt exposure to increase over time.