Is this the time to invest in Brazil, Russia, India and China – or indeed any emerging market?
Saturday 06 October 2007
In spite of widespread market turmoil in recent weeks sparked by the "credit crunch" in the US, funds investing in global emerging markets continue to show their resilience.
Economic growth in emerging markets, which is driven by domestic demand and exports to other emerging markets, has made them better able to withstand downturns in the developed markets, and those brave enough to invest in this sector are reaping significant rewards.
According to Devan Kaloo, the head of emerging markets at Aberdeen Asset Managers, one of the key attractions of emerging markets in the longer term is rising domestic consumption. "Young and growing populations, with expanding workforces and developing middle classes, will boost earning and spending power in emerging market countries, and this in turn will drive domestic growth," he says.
Allan Conway, the head of emerging markets equities at Schroders, claims that in today's uncertain economic environment, emerging markets are starting to look like a safe haven for investors.
"This would have been unthinkable only a few years ago," he says. "But today, economic fundamentals have improved enormously. On average, emerging markets economies are growing by 5-6 per cent a year, earnings growth is close to 20 per cent, and valuations remain supportive."
At the same time, says the independent financial adviser Dennehy Weller, the emerging economies represent more than 80 per cent of the world's population but less than 30 per cent of global income, and less than 10 per cent of the world stock-markets by value – which is why the opportunities are so exciting.
The table, supplied by Morningstar, shows some of the top-performing funds in the global emerging markets sectors over a one-year and a five-year period.
For example, someone who invested £1,000 five years ago in the Jupiter Emerging European Opportunities fund would have seen their investment grow to a staggering £5,183 today, on an offer-to-bid basis with net income reinvested.
Darius McDermott, managing director at the discount brokers Chelsea Financial Services, says this fund has a "relatively small investment universe. It focuses solely on European companies in areas or sectors that are considered by the fund manager Elena Shaftan to offer good prospects for capital growth, taking into account economic trends and business development. It has benefited greatly from Russia's economic strides and continues to see opportunities in Europe."
Over a one-year period, the top-performing fund is the Allianz RCM BRIC Stars fund, which invests in Brazil, Russia, India and China. The same £1,000 investment made a year ago in this fund would have grown to £1,633 today.
However, while past performance of many of these funds is impressive, investors must remember that this is not a guide to the future, and putting money into this region is definitely not for the faint-hearted.
Brian Dennehy of Dennehy Weller urges investors contemplating these stock markets to be wary.
"This sector is up by about 250 per cent over the last five years, compared to a little over 100 per cent for the UK stock market," he says. "Increased volatility in credit markets, and concerns over the US economy, could certainly spill over into the emerging markets, although to date they have been showing remarkable resilience.
"Whatever the global background, you should not be surprised by occasional falls of 20-30 per cent, and some years of 50 per cent falls and 100 per cent rises."
He adds that for those who would rather pursue a lower-risk way to build their emerging market exposure, "making monthly contributions is a superb way to do this".
Dennehy recommends the Axa Framlington Emerging Markets fund, managed by William Calvert, who can choose from all emerging markets.
"The manager takes care to avoid areas where the downside potential is too great, whether at a stock or country level, a defensive approach which has attractions in these higher risk markets," he says.
McDermott says that one of the funds he likes at the moment is the Lazard Emerging Market Growth fund. "Often overlooked by private investors, this is a generalist fund that takes account of the entire picture, offering unconstrained exposure to global emerging markets," he says. "At any time it can shift its exposure to emerging markets across all continents.
"Having recently met with the team's management, we were impressed by their investment process – an analytical approach with risk at the forefront of the manager's mind."
He adds that, as well as focusing on company fundamentals, the fund's management will keep a close eye on any political turmoil or economic fallout that might impact negatively on a chosen company. "One main differentiator of the fund is its exposure to China," he says. "Currently, the fund does not see value in the region and is looking to its competitors for better growth potential."
However, Martin Bamford of the IFA Informed Choice, says he prefers BRIC funds, as Brazil, Russia, India and China are the four emerging markets considered to have the best potential for long-term growth.
"These funds do represent a higher risk to capital, but with the potential for big returns as well," he says. "Our preferred BRIC fund is the RCM Allianz BRIC Stars fund, which offers exposure to all four BRIC markets, along with a small amount in other emerging markets, but with slightly lower allocation to both China and Russia.
"This fund has a 4 per cent initial charge – or 3 per cent if you are holding it within an individual savings account (ISA), and a 1.75 per cent annual management charge. Investing in emerging markets is more expensive than investing in developed economies, and this extra cost is reflected in higher fund management charges."
That said, before investing in any emerging markets fund, you should seek independent financial advice to ensure that the investment is appropriate for your individual requirements and risk profile.
Philippa Gee, investments director at the IFA Torquil Clark, says emerging markets "undoubtedly represent an exciting investment area, providing you proceed with caution."
"Allocations should be no more than 15 per cent in a portfolio, and for a more moderate investor it should be around 7 per cent," she says. "Funds within the sector can vary considerably, so I'd split an investment between at least two companies for better diversification. It's a volatile region, so think long-term, invest monthly, and commit only non-essential money."
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Pension mortgages: 'The advice I was given was wrong and now I face losing my home'
You'll need £220,000 for a minimum wage in your retirement
Minister's pension promise to firefighters challenged
Record average rents hit £761 per month - or £1,160 in London
Where can I get the best return for my £20,000 nest egg?
- 1 Planes go hybrid-electric in important step to greener flight
- 2 Antonio Martin shooting: Mayor says there should be 'no comparison' to Ferguson
- 3 Antonio Martin shooting: Police and protesters clash over teenager's death just five miles from Ferguson, Missouri
- 4 British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
- 5 Northern Lights in the UK: Stunning Aurora Borealis illuminates Northumberland sky on Christmas Eve
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Rozanne Duncan: Ukip expels councillor for 'jaw-dropping' comments made in BBC TV interview
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Panic Saturday: 13 million Britons spend £1.2bn – while 13 million others across the country live in poverty unable to afford food
BBC director Danny Cohen: Rising UK antisemitism makes me feel more uncomfortable than ever
iJobs Money & Business
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...
£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...
£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...
Day In a Page
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens