Emerging markets suffer from spooked investors
The past 12 months has been a struggle for emerging markets investors, with returns suffering as a result of the shrinking risk appetite of equity investors, according to Lonsec's Global Equity Sector Review.
The emerging markets markets of Brazil, Russia, India and China (BRIC) experienced significant declines in stock market returns throughout 2011 and 2012, with most investors making the decision to retrieve capital from higher risk assets.
"Deteriorating investment returns have prompted a bout of head-scratching for many emerging markets investors due to the nonsensical reality of US and European equities outperforming emerging markets while the economic fundamentals across both categories were in such divergence," Lonsec senior investment analyst Steven Sweeney said.
"While there were periodic bouts of 'risk on' often following news of another hefty cache of tax payer funds thrown at governments and failing banks, these proved short-lived," he said.
With BRICs and emerging Asia appearing to be flaunting "improved economic muscle", the emerging markets market has largely been the domain of the institutional investor, the majority of which has been "accessing the sector in increasing allocations", Sweeney said.
He added that financial advisers should reconsider the emerging markets market so their retail clients don't miss out on the opportunities currently available.
China's presence as one of the world's largest manufacturing and export centres is slowing, and "it may be increasingly difficult for Australian investors to gain exposure to the Asian consumption story through holdings in Australian resource stocks", Sweeney said.
In addition, the world commodity cycle is peaking and slowing the demand for Australian resource stocks, he said.
Of the 24 long only global emerging markets and Asian equity investment managed funds under review, Lonsec awarded the 'highly recommended' rating to the Aberdeen Asian Opportunities Fund, Aberdeen Emerging Opportunities Fund, Fidelity Asia Fund, Premium China Fund and T Rowe Price Asia ex Japan Equity Fund.
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