Investors should consider investing in emerging markets as the trend for emerging market bond and equities continues to outpace developed markets, according to Mercer.
Investors should take advantage of the opportunity and consider investing part of their portfolio in these markets.
“Today is as good a time as any,” Mercer global head of fixed income Paul Cavalier told InvestorDaily.
“Although these last five years have shown us an increase in volatility and illiquidity, it’s also thrown up some fantastic opportunities.”
Cavalier suggested investors should look at their overall portfolio and how much they had invested in emerging equities or currently had in their bond portfolio.
“If you can look at emerging markets and try to hedge your exposure via the Australian dollar, that will get you a high yield, and also currency appreciation of the local markets,” he said.
Economic indicators, such as growth forecasts, debt gross domestic product (GDP) and ratings, are contributing factors leading to emerging markets being in a much better position for growth.
“Over the last five to six years, we all know that growth in emerging markets has outpaced the developed world. But forecasts are still there that they will continue to do so,” Cavalier said.
Over the next two to three years, forecasts suggested growth in developed markets would be around 2 per cent in comparison to 8 per cent in developing markets such as Latin America and Asia, he said.
“The growth picture in emerging markets actually tells a very strong story,” he said.
High debt GPD levels in developed markets such as the United States and Europe are unsustainable.
Whereas developing markets are putting policies in place to help reduce their debt GDP.
“Australia is in a much better position than the rest of the world. But in the markets as a whole, debt GDP is in a much better position in the emerging markets,” Cavalier said.
Ratings are also a contributing factor and the number of downgrades in developed markets has increased, with no signs of improvement.
“We see a far better market in the emerging markets than we do in the developed world. I would not be surprised to see emerging markets outperform a basket of developed currencies by more than 3 per cent per annum in the next five years,” Cavalier said.
