Although 2012 recorded a strong result in EM, Lonsec’s Global Emerging Markets and Regional Equities Sector Review said investor confidence in the sector had dropped due to growing volatility.
“The [Lonsec] EM universe captures 21 countries at varying stages of economic and political development and fortunes can quickly swing for individual nations – this year’s market darling is quite often next year’s cellar dweller,” Lonsec senior investment analyst Steven Sweeney said.
“Forever the hostage to risk appetite, the outlook for EM equities in the second half of [2013] remains clouded. However, opportunities undoubtedly exist for contrarian investors, with the benchmark trading at historically cheap levels.”
Lonsec pointed to renewed concerns about Chinese financial stability and the end of US quantitative easing which have served to “rattle investor confidence.”
Outflows became a “torrent” in June as a result, with US$20 billion in outflows recorded over the month, Lonsec stated.
The report found that institutional appetite for EM exposure remains but that retail investors are more worried about this volatility.
Going forward, Lonsec said that investors who are comfortable with a risk/reward scenario may consider a tiered allocation to EM.
“EM Equities should not be treated as a play area for the casual day trading investor – there are numerous risks requiring specialist skills and tailored investment approaches,” Mr Sweeney said.
“Fortunately, the Lonsec universe includes a number of specialist EM managers who have delivered encouraging long-term returns to investors.”
