Investment advisors are increasingly interested in emerging-markets equities, but many aren’t accessing strategies in line with their goals according to a recent study by New York-based Emerging Global Advisors.
According to the quarterly EM Investor Sentiment Survey, 44 percent of advisors expect to increase their emerging-market allocation over the next 12 months, up from 33 percent in the fourth quarter of 2015.
“There’s a greater awareness of the importance of emerging markets,” says Marc Zeitoun, Emerging Global Advisors chief product and marketing officer. “The valuations of emerging markets equities are more compelling now than they have been over the last four years, and now the 23 emerging-market economies all have more effective monetary and fiscal policy levers to use to engender growth within their own economies.”
Yet allocations to emerging-market equities remained low: thirty-six percent of the respondents allocated between one and five percent of their managed assets to emerging markets, while 37 percent allocated between five and 10 percent.
Furthermore, less than one-third of the advisors surveyed (29 percent) felt like their emerging-market strategies were aligned with the best opportunities for growth.
“The most surprising thing is that people are acknowledging that they’re either not invested or that their current investing strategy doesn’t reflect where they see the best opportunities,” says Zeitoun, “There is a clear disconnect between what they know is good for them and how they can get there with the tools presented to them as advisors.”
Despite improving sentiments, thus far most advisors aren’t increasing their allocations to emerging markets. Over the past 12 months, 48 percent of the respondents kept their allocations the same, while another 37 percent report lowering their allocations. Half of the respondents expect to keep their emerging market equity allocation stable over the next year.
More than two-thirds of the respondents, 67 percent, identified India as the region offering the best opportunities for return over the next 12 months, followed by Asia (47 percent), Latin America (34 percent), China (23 percent), Africa (16 percent) and Eastern Europe(11 percent).
“The global force for growth in the future will largely be in India,” Zeitoun says. “When you look at the demographics, the number of affluent people and the growth of the middle class, if the trends continue, India will eclipse China.”
Investors identified consumer and domestic demand as the best sector opportunity for growth over the next year, followed by infrastructure, technology and energy/materials.