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Emerging market (EM) investing has evolved from its roots in developing economies to include a new breed of world-class global competitors. China stands out the most — its weight in the MSCI EM benchmark has increased from 7% in 2002 to 16% in 2007 to a whopping 29% at the end of 2018. China’s benchmark weight will increase further because MSCI has decided to include a larger percentage of A-Share listed stocks in 2019.
Across EM countries, changes in production and consumption patterns are mirrored by the changing composition of sectors in the MSCI EM benchmark. The weights of sectors such as energy, materials and traditional telecom services have been cut in half in the past ten years, while the weights of information technology and consumer discretionary have more than doubled in size in the same time frame.
Access to global technology, combined with access to cheap labor at home, has created an increasingly competitive production advantage for emerging market countries and the companies based there. Rising income levels have fueled an increase in demand for discretionary goods and services.
Economic growth in emerging market countries, while generally higher than that in developed market countries, is lower today than it has been in the past. Macro and political factors across emerging markets impact capital flows, currency stability and asset values.
State Street Global Advisors’ macro process includes assessing the sustainability of economic growth, fiscal soundness, and strength of institutions such as rule of law, policy credibility and political stability. We believe that identifying and understanding the macro risks is an important factor in making country allocation decisions. Investment opportunities still exist in emerging markets; however, legacy analytical tactics alone are no longer enough to uncover those opportunities.
Emerging Markets: 26 emerging economies: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates.
The views expressed in this material are the views of George Bicher and Laura Ostrander through the period September 27, 2019 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent. All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
Equity securities may fluctuate in value in response to the activities of individual companies and general market and economic conditions.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.
Currency Risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.
Foreign investments involve greater risks than US investments, including political and economic risks and the risk of currency fluctuations, all of which may be magnified in emerging markets.
Investments in emerging or developing markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries.
Investing involves risk including the risk of loss of principal.
This information is for informational purposes only, not to be construed as investment advice or a recommendation or offer to buy or sell any security. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. There are no guarantees regarding the achievement of investment objectives, target returns, portfolio construction, allocations or measurements such as alpha, tracking error, stock weightings and other information ratios. The views and strategies described may not be suitable for all investors. SSGA does not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision. Investing entails risks and there can be no assurance that SSGA will achieve profits or avoid incurring losses.
Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted.
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