Look to Smaller Emerging Markets to Boost Returns, Says State Street Global Advisors’ Active Emerging Markets Team
March 30 2011 - 9:24AM
Business Wire
New market research from State Street Global Advisors’ (SSgA)
Active Emerging Markets investment team shows that the rise of
emerging markets is more than just a Brazil, Russia, India and
China (BRIC) story. According to the team’s research (see Chart
one), since January 1997 BRICs have underperformed a group of
smaller countries within the emerging world. As of March 2011,
non-BRIC smaller emerging market countries outperformed BRICs by
39%.1
Research based on SSgA’s Small Emerging Markets strategy
compares the MSCI BRIC index against a group of smaller emerging
countries consisting of the following markets: Chile, Colombia,
Czech Republic, Egypt, Hungary, Israel, Peru, Poland, the
Philippines, Thailand and Turkey.
Chris Laine, portfolio manager for active emerging market
equities at SSgA comments, “Investors, while maintaining a core
exposure to BRIC countries, should not close their eyes to other
growth areas in the emerging world. Many of the smaller emerging
and frontier economies have quietly been making investor-friendly
reforms and deserve the attention of international investors. Many
of these economies offer value, growth and solid
profitability.”
The research also shows that with stocks trading at 11 times
forward earnings, the broad emerging market asset class is not in a
bubble.2 Laine continued, “While it is true that emerging
markets no longer trade at a significant discount relative to
developed markets, it is hard to say that an asset class trading at
11 times forward earnings is in a bubble. This is right in line
with its seven-year average.“
“Developed markets still offer the diversification, liquidity
and transparency that investors require; however, if we continue to
see emerging markets further develop and become more transparent,
the argument to award emerging markets a premium will be
compelling.”
SSgA’s research also analysed the sovereign credit default swap
(CDS) market and found that the market may actually be judging many
developed economies to have greater sovereign credit risks than
emerging. Of the 20 countries with the largest sovereign CDS
spreads, only four countries are classified as emerging, while six
developed countries made the list.3
Laine explains, “On a short-term basis, emerging market
equities do have a higher degree of volatility, but if we think
about longer-term systemic risks, emerging markets appear to us to
have more favourable characteristics. Lower government debt burdens
and healthier consumers suggest that emerging markets will continue
to attract capital.
“As we look to a future with strong and stable government
balance sheets in emerging markets, combined with forecast GDP
growth of 4-5 percent greater than the G-10 economies4, we could
see potentially high stock market returns.”
He concluded, “The uptrend for emerging markets is clear
and in my opinion should continue. Looking at M&A and IPO
activity for the last few years, investors (and investment banks)
are positioning for this growth to continue. Investors should be
considering whether their current allocation to emerging markets is
suitable given the risk/return trade-offs.”
About State Street Global Advisors
State Street Global Advisors (SSgA) is the investment management
business of State Street Corporation (NYSE: STT) and one of the
world’s largest institutional asset managers. The firm is relied on
by sophisticated investors worldwide for its disciplined investment
process, powerful global investment platform and access to every
major asset class, capitalization range and style. SSgA is the
asset management business of State Street, one of the world’s
leading providers of financial services to institutional
investors.
About State Street Corporation
State Street Corporation (NYSE: STT) is one of the world's
leading providers of financial services to institutional investors,
including investment management, investment research and trading
and investment servicing. With $21.5 trillion in assets under
custody and administration and $2* trillion in assets under
management at December 31, 2010, State Street operates in 26
countries and more than 100 geographic markets worldwide. For more
information, visit State Street’s website at
www.statestreet.com.
Note to Editors: The views expressed in this material are
only the views of SSgA’s Active Emerging Markets team through the
period ended March 29, 2011 and are subject to change based on
market and other conditions.
*Source: SSgA Global Strategy & Research. This AUM includes
the assets of the SPDR Gold Trust (approx. $58 billion as of
December 31, 2010), for which State Street Global Markets, LLC, an
affiliate of State Street Global Advisors serves as the marketing
agent.
Foreign investments involve greater risks than U.S. investments,
including political and economic risks and the risk of currency
fluctuations, all of which may be magnified in emerging
markets.
The MSCI All Country World Index is a trademark of MSCI Inc.
CORP-0307
1 Source: SSgA. Since inception to 29th March 2011
2 Source: MSCI / SSgA as at November 2010
3 Source: Bloomberg
4 Source: SSgA
Photos/Multimedia Gallery
Available:
http://www.businesswire.com/cgi-bin/mmg.cgi?eid=6665030&lang=en
State Street (NYSE:STT)
Historical Stock Chart
From May 2024 to Jun 2024
State Street (NYSE:STT)
Historical Stock Chart
From Jun 2023 to Jun 2024