AllianceBernstein emerging markets portfolio manager Sammy Suzuki said despite emerging market equity valuations dropping, there are still good returns to be had if investors take the right approach.
“For most of the past decade, when emerging markets benefited from strong economic growth, investors did well by focusing on the ‘beta’ trade, or simply following emerging-market indices,” Mr Suzuki said.
“For example, for the 10 years ended December 31, 2013, emerging-market equities and bonds delivered respective annual gains of 11.2 per cent and 11.8 per cent, far outperforming developed-market equity returns of 7.0 per cent,” he said.
“Those growth tailwinds are now diminishing as the credit, commodity and investment cycles have peaked and many developing-world countries feel the impact of China’s difficult economic transition,” Mr Suzuki said.
Mr Suzuki also pointed out that an active investment strategy is important for managing risks as emerging markets are more volatile than developed markets which “increases the risk of big losses”.
“There are three steps investors can take to reduce these risks. They are: target reliable bottom-up sources of positive returns, [not being] too quick to reload into losers or afraid to cut your losses, [and] invest in stable-growth [and] less volatile companies,” Mr Suzuki said.
“In the coming decade, we expect investment success in emerging markets to hinge on the ability to identify the firms that can most deftly navigate the new environment."
