Investors should ensure their portfolios have sufficient exposure to emerging markets equities as growth rates in nations such as China and India are set to boom, according to Bell Potter Securities.
Developing countries on average should be able to grow at 5 per cent annually over the next decade due to favourable demographics, superior productivity potential and stronger government balance sheets, the firm’s director of research Peter Quinton said.
In contrast, advanced economies are forecast to grow by 1.3 per cent annually because of slower population growth, ageing workforces and ongoing debt reductions by both the private and government sectors.
“Most private clients, whether it be by design or accident, are probably more centred on this 1.3 per cent in terms of their stock selection than they ought to be,” Quinton said.
“So the point I’m trying to get across to clients is that you have to make sure your portfolio construction and the stocks in your portfolio are very much centred on this 5 per cent growth in the developing world, not the 1.3 per cent growth in the developed world.”
Although he liked the major blue chips including BHP Billiton, Rio Tinto and Woodside Petroleum, Quinton said investors need not limit themselves to just the resources sector for emerging markets exposure.
For example, he said employment website operator Seek had substantial stakes in companies within South East Asia and South America.
“Even Australia and New Zealand Banking Group as you know is trying to get 20 per cent of its net profits from Asia over the next couple of years,” he said.
“So you don’t have to dig too far beneath the surface of the stocks that you are looking at to get exposure to that 5 per cent.”
He said another way to get emerging markets exposure was by investing in low-cost exchange-traded funds.
