World turned upside down

world_security_410We wake this morning to a changed world. The Egyptian people appear to have achieved an almost bloodless revolution, and left the main square in Cairo clean and tidy. And China has officially passed Japan to become the world's second largest economy. Analysts predict the Chinese economy could be as big as that of the US within a decade.

What happens in China and Egypt matters much more to us here in Europe than it would have done ten or even five years ago. Two reports released this morning underline the growing importance of emerging markets both for the European fund industry and the financial services in general.

A commentary from Charles Prideaux, head of BlackRock’s EMEA institutional business citing ten new challenges to be faced by institutional investors in 2011 lists ‘diversification – and more diversification’ as challenge number four, highlighting the role of emerging markets.

“One of the lessons of the financial crisis was that diversification requires dynamically managed exposure to a broad range of asset classes with low correlation and diversified sources of risk: this will increasingly be reflected in investor portfolios,” says Prideaux. “It will also lead to greater exposure to emerging markets.”

At the same time, 14th PwC Global CEO Survey shows that CEOs of financial services companies believe emerging markets will be more important than developed markets to their organisation’s future. China tops the list, followed by Brazil and India.

Meanwhile, the world waits to see what will happen next in Egypt. From an investment management perspective, it is a crucial moment for the world’s increasingly important frontier markets. Investment managers tend to prefer stable dictatorships to unstable fledgling democracies, but on Friday the Africa and Middle East specialist investment firm, Silk Invest, struck an optimistic note in the wake of the Egyptian protests.

“We have always believed in our countries and fortunately they are delivering,” said Zin Bekkali, CEO of Silk Invest. “Both Tunisia and Egypt have shown that regime change can happen. It was time for democracy to reach these countries and it did. From an investment point of view, we believe that the recent events will be a powerful catalyst for further growth.”

Fiona Rintoul, editorial director
©2011 funds europe

May it be so.