Nordea’s Nøddekær: Not all EMs are created equal

 Jorry Rask Nøddekær (pictured), manager of the Nordea 1 – Emerging Stars Equity Fund comments on the outlook for emerging market equities.

Not all emerging markets are created equal. The fundamental differences between many of the different regions in the emerging market universe are stark, underlining the importance of taking an active investment approach in this asset class.

Emerging market equity investing just ten to 15 years ago largely consisted of trying to exploit GDP growth across the universe and hoping this translated into company earnings. Investors could simply buy areas such as Chinese cement, Russian steel and Brazilian iron ore. But this time has well and truly passed.

Indeed, passive index investors a couple of years ago would have had a large weighting in Brazil, but the Latin American economy’s importance in the MSCI Emerging Markets benchmark is diminishing by the day. In addition, the index still houses significant constituents from ‘Old China’, which faces continued headwinds as the economy transitions.

But there are new innovative leaders evolving in today’s diverging emerging markets – which are largely being driven by changes in technology, demographics, globalisation and sustainability. It is therefore unfair to paint all emerging markets with the same brush.

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