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Asia & Emerging Markets

Asia & Emerging Markets sector

The Asian and emerging markets cover a broad range of countries at varying stages of economic development.

Kate Marshall - Investment Analyst
01 July 2017

The Asian and emerging markets cover a broad range of countries at varying stages of economic development. As young, emerging economies, the developing world tends to offer greater growth opportunities than the West, although this means they are a high risk and more volatile investment proposition.

Asian and emerging markets have undergone rapid economic growth and industrialisation in recent decades. Long-term growth should remain underpinned by a youthful and increasingly well-educated population, while a rising middle class is expected to boost consumption-led growth across the region.

This part of the world contains a diverse range of economies, stretching from Asia and Eastern Europe to South Africa and Latin America. Each country is at a different stage of economic development. Some are rich in commodities and natural resources; some are more reliant on exporting goods to Western economies; and others have a vibrant consumer-driven society.

Funds investing in the region have different areas of focus:

  • Emerging markets funds – offer broad exposure to global emerging economies, from Brazil to Malaysia and India to Turkey
  • Asia ex Japan funds – invest exclusively in Asian markets, such as China and the Philippines. Some will place greater focus on more mature and well-established economies, including Hong Kong, Singapore and Australia
  • Regional funds – others focus on a specific region or country such as Latin America, including Brazil and Chile, or Eastern Europe, which includes Russia

The region continues to face a number of challenges, including slowing growth in China and political turmoil in some countries. However, we believe the long-term growth potential remains intact. Like the rest of the world however, Asian and emerging economies will face challenges in the short term.

Our view on the Asia & Emerging Markets sector

Together, Asian and higher-risk emerging markets form a true economic powerhouse. In our view the long-term outlook for the region is underpinned by youthful and increasingly well-educated populations, rising domestic consumption and an increasingly wealthy middle class.

After a period in the doldrums, Asian and emerging markets staged a recovery last year and have continued to perform well so far this year. Despite the improvement in performance, these markets continue to offer good value in our view. History has shown that investing when valuations are lower can lead to good long-term returns and we still see an opportunity for patient investors. There are no guarantees, however, and the market could always get cheaper, so a long-term view should be taken.

When investing in the emerging and Asia Pacific nations, we believe a diversified approach is sensible. The disparity between countries means this part of the world can be home to both the best and worst-performing global stock markets at any one time.

For investors seeking exposure to emerging markets for the first time we believe a broad global emerging markets or Asian fund is likely to be a good starting point. Other funds could then be added to provide additional exposure to a particular theme, area or country.

Investment notes

Please remember past performance is not a guide to future returns. Where no data is shown, figures are not available. This information is provided to help you choose your own investments, remember they can fall as well as rise in value so you may not get back the original amount invested.

Our favourite funds in this sector

First-class performance potential and low management charges

View the Wealth 150

Following several years of more lacklustre returns, Asian and emerging stock markets staged a recovery last year as fears over an economic slowdown in China subsided; a rebound in commodity prices aided resource-rich economies such as Australia; and the prospect of political or economic reform improved investor sentiment towards some countries such as Brazil and India. UK-based investors benefited further from the strength of Asian and emerging markets currencies against sterling.

It hasn’t all been plain sailing, however, and emerging markets remain volatile. These markets experienced a short-term setback following November’s US election, as investors feared Donald Trump’s protectionist policies would harm exports from the region. Share prices have since rebounded once more and the longer-term investment case for Asian and emerging markets remains intact, in our view.

Asia and emerging markets - one year performance

Past performance is not a guide to future returns. Source: Lipper IM to 30/06/2017.

Asian and emerging markets have delivered phenomenal levels of growth over the long term, although this is no guarantee of future performance. As emerging economies mature, they are building some of the world’s most successful companies and are overtaking some of their Western neighbours. While this could support growth over the long term, it will not be a smooth ride.

Annual percentage growth
June 12 -
June 13
June 13 -
June 14
June 14 -
June 15
June 15 -
June 16
June 16 -
June 17
FTSE AW Asia Pacific ex Japan 13.4 4.6 8.6 6.8 27.7
FTSE Emerging 7.2 1.2 6.7 3.7 24.1

Past performance is not a guide to future returns. Source: Lipper IM to 30/06/2017

Investment notes

Please remember past performance is not a guide to future returns. Where no data is shown, figures are not available. This information is provided to help you choose your own investments, remember they can fall as well as rise in value so you may not get back the original amount invested.

Five year performance

  • FTSE AW Asia Pacific ex Japan

    +75.6%

  • FTSE Emerging

    +48.9%

Data correct as at 30/06/2017. Please remember past performance is not a guide to future returns.

Our favourite funds in the sector

We undertake a comprehensive review of every sector. Here we provide comments on a selection of funds of interest following our most recent Asia & Emerging Markets sector review. They are provided for your interest but are not a guide to how you should invest. If you are unsure of the suitability of an investment for your circumstances seek personal advice. Comments are correct as at July 2017. These funds invest in emerging markets, which are higher risk than developed markets. Remember all investments can fall as well as rise in value so investors could get back less than they invest. Past performance is not a guide to the future.

To view a full list of our favourite funds within the sector, visit the Wealth 150. There is a tiered charge to hold funds in the Vantage Service with a maximum of 0.45% p.a. - view our charges.

Other funds in this sector

Here we look at some other funds of interest following our most recent sector review. Please note the review period may be over a short time period and past performance is not a guide to future returns.

To view a full list of our favourite funds within the sector, visit the Wealth 150.

Source for performance figures: Financial Express

This fund provides broad exposure to a range of emerging countries and is biased towards larger businesses, although it does invest a small proportion in higher-risk smaller companies. The managers focus on companies with strong balance sheets and good levels of corporate governance.

The fund had a good year and outperformed the broader emerging stock markets, aided by good stock selection, according to our analysis. It currently has a bias towards the financials and technology sectors and to countries including India, South Africa and Brazil. The fund has outperformed its emerging markets benchmark over a prolonged period, which we feel many other funds in this sector struggle to achieve. A focus on quality companies means we do not expect the fund to significantly outpace the broader market during periods of rapidly rising share prices, although we would generally expect the fund to outperform in a falling market.

This fund invests across the Asia Pacific region and focuses on some of Asia’s largest businesses. The team seek companies with sound balance sheets and run by shareholder-friendly management.

The fund has performed similarly to its benchmark over the past year, although over the past few years it has suffered a weaker period of performance. We acknowledge all active fund managers experience weaker periods of performance compared with their benchmarks and we expect the team's process to drive good long-term returns. The team continue to adhere to the same disciplined investment process that has applied to the fund for 30 years and driven good long-term returns. Past performance is not a guide to the future, however.

This fund aims to track the performance of the FTSE World Asia Pacific ex Japan Index; a broad index of companies based across the region.

The fund provides exposure to around 560 large, medium-sized, and higher-risk smaller companies based across Asia. Since launch it has tracked its index tightly and efficiently.

This fund is our favoured choice for pure exposure to Indian companies. A bias to small and medium-sized companies differentiates the fund from many of its peers focused on India’s largest companies.

The fund has outperformed the broader Indian stock market over the past year, helped by its exposure to medium-sized companies and good stock selection, according to our analysis. India is currently undergoing significant economic reform, which could improve its business environment, and Avinash Vazirani, the fund’s manager, believes the fund could be well-placed to benefit. India is fast becoming one of the world’s most important economic stories and this fund is our favoured option for exposure to the country’s exciting long-term development.

Ross Teverson seeks companies he believes are undergoing positive change that has been underappreciated by other investors. A bias to small and medium-sized companies differentiates the fund from many of its peers.

The fund has lagged the broader Chinese stock market over the past year. While the shares of smaller companies have grown in value, they have lagged their larger counterparts and this has dragged on performance. We like Ross Teverson’s high-conviction and unconstrained investment approach and feel he has the potential to add value for investors over the long term, although the concentrated nature of the fund does add risk. While he has prior experience managing portfolios of emerging markets shares, we would like to see him build a longer track record at Jupiter and in running a portfolio focused on a single country. Therefore the fund does not currently feature on the Wealth 150, but we will continue to monitor performance.

This fund provides broad exposure to the Asian region. The fund’s manager is currently focused on companies that could benefit from consumer-driven growth.

Teera Chanpongsang is an experienced investor in managing Asian equities. He believes domestic consumption will be one of the key drivers of growth across Asia over the long term. The fund is therefore biased towards companies in sectors that could benefit from this trend, including consumer goods and technology. We view the manager as a sensible investor and would expect him to deliver good long-term returns for investors. That said, we currently have greater conviction in other managers in this sector with stronger track records over a prolonged period.