In the decade ending Dec. 30, 2012, developing-nation equities had annual returns of 17 percent, twice those of developed nations. That changed in the taper tantrum years amid fears that the Fragile Five, which included Brazil and India, would struggle to meet high external funding needs. Responding to changing sentiment, Goldman Sachs Group Inc. shut its BRIC fund in October 2015 after losing 88 percent of its assets since a 2010 peak.
Earlier this year, Goldman signaled its partial return, urging investors to " stay the course" with a bet on currencies from Brazil, Russia and India. Meanwhile, O’Neill, who later served as commercial secretary to the U.K. Treasury, said last month that fears of an economic slowdown in China are “ completely overblown.” To him, the world’s top story remains the rise of emerging-market consumers, led by China’s mushrooming middle class.
In India, measures designed to fuel growth and investment spearheaded by Prime Minister Narendra Modi could remake the world’s second-most populous nation into one of the more dynamic markets over the next several years, according to Charles Knudsen, who helps oversee $16.5 billion in emerging-market assets for T. Rowe Price Group Inc. from Baltimore.
The country is expected to reclaim its crown from China as the world’s fastest-growing large economy over the next three years, according to the median estimates of 37 economists surveyed by Bloomberg.
And while recent political turmoil has dimmed the outlook for unpopular changes to Brazil’s pension system, which would set a minimum age for retirement among other measures, traders like the nation’s high real interest rates and expected rebound from its worst recession in a century.
"It requires quite a bad scenario in Brazil to drive the investor community into a large and structural underweight," said Arnab Das, the London-based head of emerging-market macro at Invesco Ltd., which oversees $841 billion in assets. "It is structurally difficult to be under-invested in Brazil."
Russia’s diversification away from dependence on energy and materials will help support its rebound from two years of contraction, according to Mobius. Meanwhile, investors have been unfairly pessimistic towards China, where growth is forecast to exceed 6 percent over the next three years, he said.
“The reality is that as a planned economy and with the government having control of the major banks and large companies, a financial crisis is simply not in the cards,” Mobius said.
Although developing-nation assets rallied over the past year, with stocks surging 25 percent and currencies gaining about 7 percent, investors say there’s room for further gains. An MSCI index tracking emerging market equities gained 0.6 percent as of 1:21 p.m. in London on Monday, while a measure tracking the currencies lost 0.2 percent.
"The flows to emerging-market funds have been quite strong this year, but I think people are still underweight," said Morgan Harting, a portfolio manager at AllianceBernstein, who is investing more in Asian equities and Latin American debt.
This article was provided by Bloomberg News.