New structures tap changed emerging market thinking

Emerging markets are developing increasing depth and complexity, suggesting that the usual investor view of lumping the “BRICs” together is too simplistic, say fund managers.

The BRIC acronym (short for Brazil, Russia, India and China) was first used more than a decade ago by Goldman Sachs’ Jim O’Neill. But the universe has evolved significantly and such terms are now almost meaningless. Far more sophisticated strategies and asset allocation are needed to secure returns, protect capital and adhere to regulatory demands.

Asset management, private equity and hedge fund executives expect growth over the next year to come from smaller Asian economies such as Hong Kong, Singapore and South Korea – this according to a study by RBC Capital Markets, the corporate and investment banking arm of the Royal Bank of Canada.

“Asset managers and investors are needing to be increasingly discriminating in their portfolio allocation, taking a more nuanced approach to investing, looking for alternative indicators, and conducting appropriate analysis and risk management,” said Richard E. Talbot, co-head of Global Research, RBC Capital Markets.

The study showed that 73% of respondents considered the smaller Asian economies to have better prospects for growth in the next year compared to the year just passed, followed by India (66%) and China (65%). Russia (51%) leads the second pack, followed by Africa (%), Europe (43%), North America (42%) and Japan (27%).

Marc Harris, co-head of Global Research, RBC Capital Markets, adds: “Emerging markets have led global growth for the past several years, and asset managers around the world believe they will continue to do so. However, it is quite surprising that asset managers see smaller Asian economies surpassing China and India in terms of growth prospects.

“The emerging markets are more diversified than ever and are growing at different rates. Investors are recognising the need to look beyond the four traditional emerging markets and are now looking to intra-regional differences in search for yield.”

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