Simon Godfrey, Investment Specialist Emerging Markets, BNP Paribas Investment Partners
The events of the last two years have shown how far emerging markets have come of age. Their place in the global economic hierarchy is evolving quickly – to the extent that the term ‘emerging’ is becoming obsolete in a growing number of cases. In what we believe will be an increasingly ‘two-speed’ world in the years ahead, emerging markets should benefit not only from existing structural growth drivers (economic dynamism, demographics, commodities wealth), but also from their healthier fiscal position compared to those economies more traditionally regarded as ‘developed’.
All of this should prove sustainably positive for both the equity and debt capital of companies and governments in a number of ‘emerging’ countries, as well as for their currencies. Emerging markets’ corporate profits are recovering and this should continue in 2011: earnings are expected to rise by 31% in 2010 and by 17% in 2011 . Meanwhile, an increasing number of emerging market issuers are reaching investment grade.
So, how much should investors allocate to this exciting area? How should they differentiate between the many emerging market opportunities, such as BRIC, Emerging and Frontier Markets, or Advanced, Local and Corporate Debt, to name but some?