United States fund manager Neuberger Berman, which manages around $775 million in funds for Australian institutional investors, has added its voice to the chorus claiming that emerging markets will be a key investment theme of 2013.
Alan Dorsey, the New York-based head of investment strategy and risk for Neuberger Berman, says that 2013 could herald “a new phase” of lower structural risk in emerging markets.
“Historically emerging markets have been highly vulnerable to cyclical issues that tend to create economic highs and lows not necessarily correlated to structural stability or financial realities, but this is now starting to change,” said Dorsey, who thinks the status of emerging markets was changing to become a traditional and core asset class.
“This represents a one-time transformation of emerging market equities and debt that could provide a unique opportunity for investors, who generally speaking are underweight emerging market asset classes.”
Emerging markets have been on the Australian investment radar for some time as investors look for yield in a flat landscape, and yet that interest is yet to translate into significant investment activity.
Lower risk, greater stability
Among institutions, allocations are increasing, as shown by the $140-million mandate awarded last week by industry super fund Hostplus to Scottish-based emerging markets manager Martin Currie.
Hostplus chief investment officer, Sam Sicilia, told I&T News’ stablemate publication IM Online that the fund saw Asian emerging markets as one of the “growth engines” of the world.
“I think we can do more than a third or our international equities exposure because in the near term the fund keeps getting bigger, but I don’t see any other places to put the equity exposure,” Sicilia said.
Long-time emerging market bulls Goldman Sachs Asset Management, who coined the BRICS term to describe the growth of eight emerging markets, conducted a survey late last year among Australian retail investors and found that while 46 per cent believed that allocating more funds to emerging markets would improve their returns, only 17 per cent planned to invest in the next year.
Forty-four per cent of investors said they were not investing in emerging markets because they lacked awareness and knowledge, while 31 per cent said they preferred Australian companies.
At Neuberger Berman, Dorsey sees a lowering of emerging market risk, combined with the developing middle class were key factors in supporting stability.
“Historically, US$5000 in annual disposable household income is the point of critical mass when domestic consumption starts to grow strongly,” he said.
“In China, India and Indonesia in particular, the number of households with an annual income between US$5000 and US$15,000 has grown rapidly over the last decade, and is predicted to increase further over the next 10 years.”