Explore the misconceptions surrounding emerging markets and discover why they are crucial for a well-diversified investment portfolio. Learn from expert insights on the growth potential and risks associated with these dynamic economies.
Whatever you think about Emerging Market (EM) equities, you’re probably wrong. The popular misconception is that EM indices are a single, monolithic, low-tech, high-risk/potential-high-reward bucket. The reality is far more nuanced and far more interesting, especially if you’re building a well-diversified investment portfolio.
When it comes to offshore diversification, most local investors automatically think of Developed Market (DM) indices, such as the S&P 500 or the MSCI World Index. And while these indices have added significant value to investor portfolios since 2010 (largely on the back of tremendous technology sector growth), looking ahead, investors may be well served by adding a diversified global equity exposure in the form of emerging market equities.
Common misconceptions about emerging markets
EMs are often characterised as politically unstable, commodity-driven, and highly dependent on global cycles. But while these risks remain relevant in parts of the universe, this view is increasingly outdated. EMs are diverse, spanning multiple regions and development stages, with many economies becoming more domestically driven. They are also home to globally competitive companies, resulting in a wide range of risk and return profiles across the asset class.
