EM volatility presents long-term opportunity, Lonsec says
While emerging market returns have been a cause for concern over recent weeks, those investors who take a broader perspective may be able to take advantage of the volatility inherent in the sector, according to Lonsec.
The research house said recent analysis revealed that while emerging markets have experienced strong bouts of volatility, they have also produced significant real returns over the long term.
Lonsec also pointed out that the phrase “emerging markets” captures a large number of diverse countries. While Turkey and Argentina have suffered from trade related uncertainty, political risks and a rising US dollar, other emerging economies are powering ahead, it said.
Lonsec also noted that the relationship between GDP growth and share-market performance is imperfect, with rising GDP not necessarily translating to strong investment returns.
However, in the case of India, Lonsec said share-market performance has been reasonably correlated with GDP growth, indicating that it is relatively sustainable.
As a result, the broader emerging market index often has countries that are outperforming, and therefore balancing, laggards. This may produce more volatility but not necessarily lower returns, the research house said.
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