Abstract On Emerging Market Analysis

1. Emerging Market<br />The New World<br />Abstract<br />Emerging markets are moving to the forefront of the global economy <br />Emerging markets offer a potentially remarkable long term investment opportunity. Emerging market nations are home to over 80% of the world’s population. They are responsible for around a third of world trade, and hold a substantial amount of the world’s foreign exchange reserves. In aggregate, these countries produce over 40% of the world’s GDP (in PPP terms, according to the IMF), and this proportion is likely to rise. They are forecast to produce over 60% in 2011. In short, these counties are the economic leaders of the future.<br />The “Coming of Age” of Emerging Markets <br />As governments have undergone reform, emerging markets economic policies have greatly improved <br />• Higher growth rates expected than developed markets <br />• Sound fiscal policies <br />• Responsible monetary policy <br />• Improving institutions and fundamentals<br /> What Are the Investment Implications?<br />First, in emerging market external debt there will be a significant differentiation between the countries and companies that have access to insurance, either via self-insurance or external support, and those that do not. <br />Second, current global crisis started in the developed economies, the many emerging economies that entered this crisis with improved balance sheets7 have an opportunity to break from past crises <br />Finally, lower domestic interest rates, credit contraction from global deleveraging and reduced export demand will put downward pressure on emerging currencies, thus strengthening of emerging currencies versus the US dollar, given the cyclical headwinds.<br />Many emerging economies are undergoing a secular journey toward a destination characterized by higher standards of living and greater reliance on domestic sources of demand. We have seen a range of responses from the BRIC countries (Brazil, Russia, India and China). Notably, China announced a series of measures totaling some 4 trillion to increase liquidity.<br /> According to Morgan Stanley there is a much more positive outlook for emerging markets, where they forecast output to grow by 6.5% in 2010 (China 10%, India 8%, Russia 5.3%, Brazil 4.8%), up from 1.6% this year.<br />Monetary policy is only expected to transition from super-expansionary to still-pretty-expansionary. This would leave what we have dubbed the ‘triple A' liquidity cycle (ample, abundant and augmenting), which has been identified as the main driver behind this year's asset price bonanza and economic recovery, fairly intact next year.<br />Diversification benefits<br />Emerging market assets’ returns come from a very diverse range of factors, and their drivers are very different to those of developed markets<br />The second area is within emerging market bonds, more specifically local currency debt.<br />Global offering<br />global emerging markets capability that in itself can leverage local knowledge. This has the advantage of offering more specialization than an international equity fund, but at the same time is a simpler and usually cheaper method than appointing separate regional managers.<br />To conclude<br />Over the longer term, we believe that emerging markets will become an integral part of the global economy. For institutional investors seeking new sources of return, they represent a very exciting opportunity. It is becoming increasingly easy to invest in these markets, as more specialist offerings become available that are tailored to institutional requirements<br />