Western countries, such as Australia, are set to experience a 20 per cent increase in economic growth in the next decade compared with an 80 per cent growth for the rest of the world, an investment strategist said.
Investec Asset Management strategist Michael Power said the superseding of the west by the east will be a tumultuous “process of displacement”.
“Surpluses from resource-rich nations, often managed by their sovereign wealth funds, will become the titans of mobilised capital in the coming decade,” Power said.
“Perhaps the next decade’s biggest geographic shift will come in the fixed-income segment: local currency emerging market debt will likely be the biggest winner in all asset classes in the next 10 years.”
From a local perspective, Investec Asset Management head of sales and marketing Justin Cowper said the home bias of Australian equities is already starting to dissipate, as it has in the United Kingdom and the United States.
“Australian equities returns have been far superior in the past decade,” Cowper said.
“The Australian equity market as a whole has provided a higher dividend yield compared to global market equities as a whole so those reasons have historically held.
“At the moment, there’s still a very strong home bias towards Australian equities [but] it’s already started to change.”
Cowper said emerging market indices are at the same level as the developed markets in terms of price to earnings and valuations, thus there is lots of value there.
“That’s going to be compelling and a lot of people may take advantage of that this year.”
He said Australian investors are also enjoying high fixed-interest rates from term deposits where emerging market debt is “a little bit of a different equation [because] people don’t know much about it and they can’t just go to the bank and take their money out”.
“Now that we’re going into more of a sustained low-interest environment and if things continue to deteriorate, interest rates will drop and then it’s going to be more compelling to get that fixed-interest return elsewhere [as] you won’t be able to get it in cash.”
