Retail investors need more EM exposure

Eggshell_emergingGlobeUK retail investors' emerging market equity investments are 'too low', according to Baring Asset Management (BAM).

The emerging world has increased its contribution to total global market capitalisation by more than 1% year on year since 1999, and currently stands at 16%, according to analysis of MSCI data carried out by BAM.

But despite the continued growth of these economies they represent less than 2% of UK retail investment portfolios according to Investment Management Association data. Barings warns that this is too low, particularly given the fact that emerging markets have outperformed developed markets by 178% over the 10 years to 30 September 2010.

The market capitalisation of the MSCI Pacific ex-Japan and MSCI Emerging Markets indices have increased by 43% and 46% respectively since the lows of September 2008. The size of the MSCI World Index on the other hand has increased by just 3% in two years. Looking at the size of these markets before the worst of the crisis hit, demonstrates that while emerging markets suffered greater losses initially (in excess of 20%), they recovered almost immediately while the MSCI World Index is still 13% below what it was in the summer of 2008

James Syme, head of global emerging market equities at Barings, said: “The long-term fundamentals for emerging markets remain strong and we believe valuations are still very attractive. Emerging markets are set to continue along this growth path and investors would do well to consider this long term trend when they look to review the allocation of their portfolios.”

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