EMERGING MARKETS AT THE CROSSROADS

A radical shift in the forces shaping emerging market growth will require investors to take a different investment approach from what may have worked in the past. Increasingly, discovering investment opportunities will be rooted in the ability to capture the alpha from the new growth drivers, rather than in chasing the beta of the broad universe.

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The Monolithic View of Emerging Markets is Obsolete

Emerging Markets Debt—The Re-Rating Opportunity

Opportunities in Emerging Market Real Estate

Small Cap, Big Value: Emerging Market Stocks

For this new white paper, over 30 PGIM investment professionals, as well as leading academics and policy-makers from around the world, were interviewed to debate the most striking developments across emerging markets (EM), the likely winners and losers, and the most attractive investment themes arising from the evolution of EMs. The developed market-oriented, export-led growth model that propelled EM growth since the 1980s is stalling due to a variety of factors. Increasingly, EM countries will be the masters of their own fate, with growth dependent on their individual abilities to capture domestic and regional opportunities. Navigating the risks and opportunities offered by this new EM order will be an increasingly important driver of portfolio returns over the long term.

If emerging markets can no longer ride on the coat-tails of developed-market economic growth, global trade liberalization or Chinese supply chains, where will growth come from—and what are the opportunities and risks investors should focus on? 

The growing importance of trade between emerging markets, as epitomized by China’s New Silk Road initiative.

The demographic dividend, particularly in South Asian and African emerging markets with an expanding working-age labor force.

The domestic consumption needs of the rising EM middle class, which is increasingly urban, aspirational, connected and wealthy.

The opportunities presented by digital disruption, especially in countries that make the necessary investments in broadband, education and regulatory reform.

Harnessing the power of deeper and broader local capital markets, which are unlocking financing opportunities for local firms.

Unbundling Emerging Markets: Portfolio-Wide Implications

 



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While no longer driven by a single unifying force, EMs continue to offer long-term investors an array of attractive investment opportunities across fixed income, equities, and real assets, especially relative to structurally slow-growing developed markets. Capturing these opportunities will require CIOs to take an active investment approach, with a focus on:

  • Developing a granular investment framework that unbundles EMs by asset class, time horizon, and growth driver
  • Updating EM risk assumptions with a more forward-looking approach
  • Rethinking their reliance on EM indices and index investing,
  • Taking a more bottom-up, thematic approach to EM equity security selection that is active and benchmark-agnostic

Capturing future EM opportunities will require taking a significantly different investment approach.

Download the whitepaper to uncover the primary investment themes that will underpin EM investment opportunities going forward.

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India’s capital market requires a further boost to its already healthy growth.

Part 2

India’s capital markets need regulatory streamlining, institutional development, and investor education.