Increasing convergence of East and West a boon to stockpickers – Create Research survey

Ongoing changes in emerging markets mean they are starting to differentiate more in terms of relative performance, and increasingly converge with developed markets, according to projections contained in the latest Create Research survey commissioned by Principal Global Investors.

The broader findings of the research also suggest that while investors will have to consider increasing convergence between East and West, they will also have to consider increasing divergence in growth rates of individual emerging markets – which means acronyms such as BRIC will loose their importance versus more individual country and stock specific investment approaches.

And there is a suggestion that it will be the US, not emerging markets, which will be the key driver of the global economy in the next three years – contrasting expectations around Europe, where those investors surveyed are only expecting revival in markets or regions such as the UK and Scandinavia.

The research report – Not All Emerging Markets Are Created Equal – was authored by Amin Rajan, CEO of Create Research, and based on a survey of more than 700 pension plans, sovereign wealth funds, pension consultants, asset managers and fund distributors across 30 countries, as well as 110 interviews, representing combined AUM of almost $30trn.

Rajan said: “While emerging markets in the East continue to converge with developed markets in the West, it is clear from our research that emerging economies will no longer move in lock step. This could be the age of stock-pickers, as catchy acronyms such as BRICs become irrelevant.”

The report found 35% of survey respondents believe China will deliver strong returns over the next three years, but just 15% believe Brazil can do so.

Over half felt China will be able to make significant progress in implementing economic reforms, but just 6% subscribe to that view when it comes to Russia.

Other key findings include:

Emerging and developed economies’ market structures will continue to converge over this decade

   – 56% of the respondents expect further convergence between East and West in terms of market structure.

   – Only 32% of respondents expect further convergence in investment behaviours, with nearly 60% expecting no change in this area.

Emerging markets will no longer be considered one homogenous group

   – Emerging market countries are progressing at very different speeds.

   – Country-specific risks gain importance over macro risks, giving way to the rising significance of stock-picking.

   – Investors are questioning the emerging market story, with those who believe in emerging markets dropping from 38% to 20% since 2012.

   – China is leading the way in the East with more than 50% of investors positive about the country’s economic outlook in the near-term.

The US is regarded by investors as the key driver of the global economy over the next three years

   – 47% of investors believe the US recovery will deliver the best returns.

    – Nearly 65% of investors believe the US government will make significant progress in rebooting its economy over the next three years.

   – 30% of investors think the outlook for Europe remains decidedly cloudy, with isolated pockets of revival expected only in Scandinavia and the UK.

The full report is available at: create.principalglobal.com and www.create-research.co.uk.

 

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