Global emerging market (GEM) equities will provide strong returns if investors are prepared to take a view of up to two years, according to Schroders.
But there are risks, it warned.
A remarkable $50 billion of outflows from GEM stock markets in 2008 has left them under-owned and cheap, Schroders global head of emerging market equities Allan Conway said yesterday.
If there is comfort that there are signs of economic recovery in 2010 then GEM stocks are a "phenomenal buying opportunity" now and will lead and outperform global equities in the recovery phase, he said.
GEMs on average rallied 343 per cent during the 2003 to 2007 bull run, but have plunged 58 per cent from their peaks to 23 December 2008, according to UBS.
"If you're prepared to take an 18-month to two-year view, we should be looking at not just strong relative returns but very strong absolute returns. These markets are now very cheap," Conway said.
"Does that mean you should be buying today? Well, probably not. As you'll see from our strategy, we're not putting money in today," Conway said.
Continued volatility is expected and it is possible that global stock markets, including GEMs, will retest their lows, he said.
Conway said there are also other risks in his outlook.
If consumers start to believe deflation is taking hold and put off purchasing a car or a television set because they feel it is going to be cheaper next month, that's "pretty well the Depression", he said.
Social instability from rising joblessness in emerging economies is also a concern, Conway said.
