Growth in emerging markets looks to “very significantly outpace” growth in developed markets, says IOOF.
By 2021, the gross domestic product of emerging markets will have risen by 27 per cent while developed markets will only have grown 9 per cent if IMF forecasts prove correct, according to a statement by IOOF.
“From a cyclical perspective, emerging markets look attractive as emerging market stocks offer relatively cheap valuations and strong growth rates for earnings,” said IOOF deputy chief investment officer and portfolio manager Stanley Yeo.
For five years after early 2011, asset classes in the emerging market suffered a “multitude of hardships”, such as drops in oil and commodities prices, slower growth in China, political unrest in various regions, and sanctions on Russia, Mr Yeo said.
“From early 2011 to early 2016, the MSCI Emerging Market Index dropped over 40 per cent.
“Valuations fell to levels not witnessed since the Asian currency crisis of the late 1990s.
“However, starting in mid-January of last year, buoyed in part by a resurgence in mining and petroleum, emerging markets have rebounded strongly,” he said.
Major emerging economies such as China, India, Russia and Brazil, as well as South Africa and Indonesia, had witnessed their account balances rising over the last three years, according to the statement.
“The last time emerging market equities traded this cheaply relative to the developed world, they outperformed the S&P 500 Index significantly over the next 12 years,” Mr Yeo said.
Though investors were often likely to sell out of emerging markets at signs of volatility, he argued the primary reason for investing in emerging markets was diversification and long-term growth prospects.