Scramble For Riskier Assets Gathers Pace

Terry Flanagan

In a possible sign that the worst of the macroeconomic news is now behind us, it appears that investors are becoming more enticed by the potential riches on offer from emerging markets.

Usually in troubled markets, it is common wisdom that safe haven assets, such as fixed income and precious metals, are where investors pile their money and that they will likely outperform more risky assets such as equities.

But if economic growth is likely to occur in the coming months then it is generally thought that a more risk-on approach will prevail and emerging market shares could be the main beneficiaries, possibly even outperforming shares of developed markets.

The one caveat to all of this, of course, is that if the global economy were to take a turn for the worse then emerging markets would likely underperform even shares of developed markets.

Earlier this week, the Investment Management Association, a U.K. buy-side trade body representing around £4.2 trillion funds under management, revealed in its latest monthly investment fund statistics for October that equities were the leading asset class for the second consecutive month and within that the global emerging markets sector was the best-selling sector for the first time.

In October, retail investors poured £228 million into the global emerging market sector. Typically, the sector attracts around just £86 million a month.

Richard Saunders, chief executive, Investment Management Association

Richard Saunders, chief executive, Investment Management Association

“Global emerging markets were the best-selling sector in net terms for the first time, as investors continued to diversify their investments,” said Richard Saunders, chief executive of the IMA.

Despite the low volumes, equity markets in the U.S., Japan and Europe have rallied significantly this year and have outperformed emerging markets for the year so far although unlike many Western nations, emerging economies have generally kept debt in check and have not resorted to printing money to prop up their economies—all of which may come back to haunt developed economies in the months ahead.

“When lower risk assets are giving sub inflation returns, it is not surprising that investors are seeking asset classes with the potential to provide a higher yield than either cash in the bank or bonds and with the prospect of capital growth over the medium term,” said Rob Burgeman, director of investment management at Brewin Dolphin, U.K.-based independent private client investment manager.

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