Depleted returns seen in emerging markets equity universe
Emerging market stocks will likely deliver 25 per cent less to investors over the coming decade than they did in the previous 10 years
As the halo slips from China stocks after their worst rout in seven years, new research from one of the world’s most venerable names in money management predicts a decade of depleted returns across the emerging market equity universe.
Emerging market stocks will likely deliver 25 per cent less to investors over the coming decade than they did in the previous 10 years as a combination of governance risks and depressed global economic growth take their toll on returns.
And that’s despite the value that exists in an asset class currently trading around 30 per cent below its 2008 peak, according to the MSCI International Emerging Markets benchmark index.
“Emerging market equities have fallen to relatively inexpensive levels and still benefit from favourable longer term trends, such as good demographic profiles in many emerging countries,” Christopher Mahon, director of asset allocation research at Baring Asset Management, wrote in the firm’s new crystal ball-gazing “Forecasting the next decade” report.
“However, poor corporate governance does mean equity holders are likely to suffer more dilution of returns over the decade.”
An accompanying chart of 10-year return forecasts shows emerging market equities expected to return about 7.5 per cent to investors between 2015 and 2025. In the 10 years to end-2014, they delivered a little over 10 per cent.
In Baring’s analysis, that shift will deliver only a very modest premium for investors in the asset class over markets like the UK and Japan which are forecast to return around 7 per cent and 6 per cent, respectively.