Emerging Markets
Investors Don't Hold Enough Emerging Market Assets - UBS

The world's largest wealth manager says investors are mistaken - despite current market angst - in not putting enough money into emerging economies, given long-term trends.
Investors don’t hold enough emerging market equities to capture
growth in these fast-growing markets, UBS argues, saying recent market
falls shouldn’t obscure the underlying promises of these
economies.
Allocations to emerging market equities in global portfolios
remain below 10 per cent although emerging markets make up 32 per
cent of the world's equity market capitalisation, the Swiss bank
said yesterday in a white paper report that crunched industry
data.
Emerging market indices have fallen this year, pressured by
concerns that rising US interest rates will push up borrowing
costs. The MSCI Emerging Markets Index of equities, when measured
in dollars, has fallen 13.1 per cent this year, for example.
But such a fall should not obscure the wider case for owning this
sector, the bank’s wealth management business said.
“Emerging markets have, over the long term, added both risk and
return to global portfolios to varying degrees,” it
said.
“Using historical returns, we show that the inclusion of a
diversified EM portfolio composed of 40 per cent equities, 25 per
cent hard-currency sovereign bonds, 25 per cent corporate bonds,
and 10 per cent local-currency bonds would have shifted up the
efficient frontier (the return-risk ratio) of a moderate risk
global portfolio,” it said.
The bank said the economic and social transformation in emerging
markets over the last two decades has been “extraordinary”. The
firms said many investors’ view of emerging markets is at least
five if not 10 years “out of date”.
Recent market falls may have spooked investors unduly, Jorge
Mariscal, head of the emerging market investment office at UBS,
said.
“But a single-minded focus on the tribulations of emerging market
assets risks ignoring not only the remarkable progress and
transformation emerging economies and societies have made, but
also the greater depth and breadth of investment opportunities
they offer,” he said.
Emerging markets up over 60 per cent of the total global economic
output, and over 70 per cent of global GDP growth.
Global trading of foreign exchange instruments denominated in
emerging market currencies has also grown 10 times since 2001,
the bank said.