The era of untrammelled optimism in emerging markets is over and investors are now far more selective about which emerging economies they expect to perform.
A study of more than 700 investors, including pension funds, sovereign wealth funds and asset managers, found sentiment divided, with some previously popular emerging markets now viewed with suspicion.
For instance, 45% of respondents selected frontier markets in Africa as one of the regions likely to offer the best returns in the next three years, while more than a third selected China and just 8% said Russia. Brazil was favoured by 15% of investors in the survey and India by 14%.
Underlying the results were differing views about which emerging markets will implement economic reforms. More than half of respondents expected China to improve economic growth and governance standards with reform measures in the next three years, but only 6% thought Russia would manage this.
“Emerging economies are not created equal,” says Amin Rajan, chief executive of Create-Research, which produced the report on commission from Principal Global Investors. “Each will have its own narrative on what it stands for and what it can deliver.”
Rajan predicts that acronyms to describe emerging market groupings, such as Brics (Brazil, Russia, India, China and South Africa) and Mint (Mexico, Indonesia, Nigeria and Turkey), will become less common as investors adopt a more nuanced view of emerging markets, which recognises the differences between them as much as their commonalities.
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