Allocations to emerging market equities in global portfolios is less than 10 percent despite emerging markets accounting for 32 percent of the world's equity market capitalisation, according to UBS Global Wealth Management’s latest report.
Despite laggard performance this year, emerging markets now make up over 60 percent of total global economic output, and over 70 percent of global GDP growth. Developing countries (China, India, Russia, Indonesia, and Brazil) were in the world’s eight largest economies in 2017 on a purchasing power parity basis.
Across developing countries, the performance of bonds, stocks, and currencies has been poor in absolute levels and in general below that of their more developed counterparts. However, adopting a long term view, the economic and social transformation in emerging markets over the last two decades “has been extraordinary”, according to UBS GWM.
In fact, the firm’s chief investment office believes many investors’ view of emerging markets is at least five if not ten years out of date, particularly as emerging markets are now involved in over 50 percent of the total global trade in goods.
Additionally, they account for over 80 percent of global cell phone service subscriptions and consume the majority of the world’s copper, iron ore and oil.
Emerging markets have also: increased foreign exchange reserves from three percent of GDP in 2000 to 10 percent in 2017; doubled their share of global military expenditures to more than 40 percent over the past two decades; and grown their equity market capitalisation nearly eight times since 2003 versus 2.8 times for developed markets.
Jorge Mariscal, UBS's emerging markets chief investment officer said: "Emerging market assets are becoming increasingly hard to ignore for global investors. Fundamental changes mean the way to think about emerging market investing in the next 10 years should differ from that of the past decade. While tactical asset allocation can take advantage of bouts of volatility, emerging market exposure should be seen as strategic in nature."
In the UK and Jersey, UBS has over 850 people across a network of seven local offices delivering a complete wealth management service, ranging from investment to wealth and financial planning, including tax planning and lending, and worldwide, UBS Global Wealth Management oversees $2.4 trillion in assets.