MR MONEY MAKER: Emerging markets are long-term creators of wealth

MR MONEY MAKER: Emerging markets are long-term creators of wealth for investors

What is happening?

Stock markets, unsurprisingly, found themselves in a terrible daze last year as they tried to figure out what the effects of the pandemic would be.

As a result, fund managers around the world have sold over £ 31.8 billion of investments in emerging markets. Then, like sheep, he reinjected £ 72.4 billion.

Meanwhile, we also saw growth in “developed” markets of nearly 12 percent, leaving emerging indices still rising but at a significantly slower pace of around 6.8 percent.

Future prospects: Longer-term wealth creation will take place in developing and emerging economies

More recently we have seen emerging markets supported by rising commodity prices. It’s important to note that you shouldn’t think of the term “emerging markets” as a bland magnolia-colored emulsion box covering them all – this is patronizing garbage because they’re all so different.

Why is it important?

Longer-term wealth creation will take place in developing and emerging economies. Developed countries, including ours, will buy their exports and invest in those countries. But it will be in emerging markets that we will see the best growth and the best long-term returns.

We can divide emerging markets into different categories. First, you have the raw material suppliers, usually mined products. Here we can therefore lobby in South Africa, Brazil, Indonesia (palm oil) and Russia. Yes, I always call Russia ’emerging’ – remember that the entire economy of this vast nation is less than 45% of that of the UK!

Then you have countries where the middle class is growing, including India, China, Mexico and, again, Indonesia.

What should I do?

The term “emerging market” covers a very wide range, and we should not think about it in droves but consider the individual potential benefits and risks.

If you think that after the pandemic the global economy will not just bounce back to where it was, but return to a more reliable growth path, then a commodities fund may be useful. The price of oil has climbed to over $ 73 a barrel. Only two years ago, it was almost bad! Mutter of the Gutter tells me that traders expect a potential increase to $ 100, but it’s a tall order.

These rising costs will fuel inflation and we are already seeing central bankers considering interest rate hikes – albeit unlikely this year – which could put a damper on much of current market prices.

The other theme is the rise of the oriental consumer and who is likely to grow, especially in areas where the middle class is growing.

No suggestion?

For a low cost commodity price tracking fund, the Invesco Bloomberg Commodity UCITS ETF offers a good entry and covers the asset class well.

For a more specific focus on an area where there is a growing middle class, then ASEAN (Association of Southeast Asian Nations) does the trick. There is one specific fund for Asean – the Global X FTSE South East Asia ETF.

Both are good investments, but they need to be put on the longer term record to get the real value from the growth in these areas.

Justin Urquhart Stewart co-founded fund manager 7IM and is president of investment platform Regionally.

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