Emerging Markets May Have a Way to Run

Another sign that emerging markets (EEM) may have a way to run is that the average pension fund only allocates an estimated 5 percent of its portfolio to emerging markets, yet they make up 30 percent of the world’s GDP, according to the International Monetary Fund.

Mike Gomez, co-head of emerging markets portfolio management at Pimco, says: ”Without question this is an asset class that continues to expand and is structurally under-invested by the majority of longer term investors. This is an asset class that has gone from exotic to more mainstream over the past 10 years.”

Emerging market funds under management globally have increased to a current $563bn from $64bn at the start of 1999, according to EPFR Global, the data provider. Yet, they are still a small part of the investable universe compared with the $4,400bn under management in the developed world.

More trade moves heighten tension, especially with China. The US Department of Commerce announced on Wednesday that it would launch an investigation into the import of seamless steel pipes from China, a move that could lead to new duties being imposed and strain already sour trade relations between Washington and Beijing. This could lead to a 98.7 percent duty on Chinese steel pipes imports and follows on the heels of a European Union decision to impose anti-dumping tariffs on the same category of products.

Emerging Market Equity Funds, which averaged $2.03 billion a week in new money during the 
second quarter, took in $1.43 billion during the final week of a quarter during which their average
 weekly inflow fell below $740 million.

Asian central banks intervened heavily in the currency markets on Thursday to stem the appreciation of their currencies against the US dollar because of deep concern that their exports could be losing ground against China. These south-eastern Asian countries have been prompted to defend the competitiveness of their currencies by China’s decision to in effect re-peg the renminbi to the dollar since July last year.

Simon Derrick, at Bank of New York Mellon in London, said: “Other Asian central banks outside China are naturally looking to aggressively defend their competitive edge against undesirable currency strength as the dollar weakens.”

Comments

[mws:]

Thanks for the fine article. I was unaware that the average pension fund allocates such a small portion of its overall portfolio to emerging markets stocks. Nice to know...


On Oct 16 Carl T. Delfeld wrote:
<< ...the average pension fund only allocates an estimated 5 percent of its portfolio to emerging markets, yet they make up 30 percent of the world’s GDP... >>

Oct 16 05:05 PM