Growth in Asia and emerging markets increasingly independent from developed markets

Emerging markets proving positive for equity investors.

Boutique fund manager Metisq Capital says emerging markets are becoming increasingly interdependent; with Asian economies and broader global emerging markets set to become more reliant on each other than on developed markets to generate sustainable economic growth.

Key economic and demographic trends have driven growth across emerging markets over the past decade and this has translated into positive outcomes for equity investors.

In Australia meeting with clients, Metisq Capital Chief Investment Officer Kenny Tjan said he saw significant potential for emerging markets investors, but it would increasingly be the interdependence between emerging Asian economies and broader global emerging markets that would drive growth of both regions.

“The steady rise in globalisation is creating positive cross border relationships across many of the emerging market economies, resulting in diversified income streams and reduced volatility of company returns,” Mr Tjan said.

Mr Tjan used the example of the materials and mining sector to provide an insight into the interweaving of emerging market economies.

The Asia (ex Japan) region is the world’s largest consumer of raw materials, its demand far outstripping Asian based commodity supply. As a result, Asia ex Japan producers and consumers are forced to look toward the resource rich emerging markets to meet the increasing regional demand. The result is a positive lift for both Asia ex Japan and non-Asia ex Japan emerging market economies.

Over the past ten years, the MSCI Global Emerging Markets index returned 13 per cent per annum, closely following the MSCI Asia ex Japan index, which returned approximately 12 per cent per annum.

Traditionally, global emerging markets have been dominated by Asian economies, which contribute 60% of the total capitalisation of the MSCI Global Emerging Market Index. The remaining 40% is made up from Europe, Africa/Middle East and the Americas.

Metisq sees an opportunity for investors to take a global view of emerging markets to widen the pool of investible companies and tap into a range of exciting new investment themes.

“While the Asia emerging markets region alone has provided investors with strong returns, a global view to emerging markets represents a more comprehensive investment universe to better meet investor needs,” Mr Tjan said.

In his current role as global Chief Investment Officer, Mr Tjan oversees Metisq’s fundamental Asian equity research, targeting quality companies with attractive valuations and positive momentum characteristics for the Metisq Asian Share Fund and Metisq China Share Fund.