Advisers may want to revamp their asset allocation models in light of the success of emerging economies, Fidelity International says.
The firm says UK savers have just 2.3% in global emerging markets, according to IMA statistics for April, even though they now account for 30% of world GDP.
Fidelity says it will not be long before some of the more prominent emerging markets are no longer deemed volatile areas of investment.
Peter Hicks, executive director UK Retail at Fidelity International, says advisers and investors may want to consider revising their asset allocation models.
“Isn’t it time for investors to raise their exposure to emerging markets from just 2.3%?
“Matching the GDP figure of 30% may be too much of a leap but for more adventurous investors, a weighting of 10-20% might be a more realistic reflection of these economies’ stature.”
Fidelity says China has climbed its way up the world league table of economic growth and is forecast by the International Monetary Fund (IMF) to be the third most important country in terms of GDP by the end of the year, behind Japan and the US.
It adds seven of the world’s 20 largest economies are now to be found in emerging markets, with Russia and Brazil also both in the top ten.
Yet it points out the MSCI AC World Index, which it calls one of the most popular benchmarks for international equity portfolios, has only a 12% exposure to emerging markets.
“Now that China’s economy has overtaken that of the UK, Germany and France, it is difficult to ignore the emerging markets story,” Hicks says.
“But the changing economic realities make it worth rethinking traditional level of exposure investors have to these markets.
“Obviously there are risks with investments in emerging markets – corporate governance standards are in some cases lower than in the West and their equity markets can be as volatile as British banking shares – but over the longer term the performance of stock markets tends to be correlated with economic performance.”
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First mentioned in Cridland Report
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