The asset manager said investors shouldn’t remain shy on emerging market stocks following 2013’s failure of economies to piggyback on the “rich-world” recovery.
“We think that staying underweight in emerging market stocks poses substantial opportunity costs for investors, particularly given the run-up in developed market stocks this year,” said AllianceBernstein emerging markets multi-asset portfolio leader Morgan Harting.
“There is upside potential in emerging market stocks next year on even a modest pick-up in emerging market economic activity,” he said.
Mr Harting said that traditionally there has been a strong relationship between developed and developing-world economic growth, which hasn’t come to light in the latest market cycle as a result of developed market recovery being more muted than in past cycles.
He said that many trends that have previously driven emerging market productivity have weakened, such as domestic credit expansion, declining transportation costs and the rise of the internet.
However, Mr Harting said initiatives such as trade expansion and infrastructure spending could boost countries like India and Turkey.
“Though the lift to emerging markets powered by developed markets may not be as strong as in past recoveries, we think even small improvements could drive outsized gains for emerging market stocks,” Mr Harting said.
“Companies most directly tied to developed world end demand would seem to be the most obvious beneficiaries, while returns for companies in Latin America, South Africa and Russia may hinge more on the direction of commodity prices and global liquidity conditions.”
