The Asian and emerging markets cover a broad range of countries. From Asia and Eastern Europe to South Africa and Latin America, each area is at a different stage of economic development. Some are rich in commodities and natural resources; some rely on exporting goods to Western economies; and others have a vibrant consumer-driven society.
These markets have grown rapidly in recent decades. As young, emerging economies, they tend to offer greater growth opportunities than the West. This means they’re higher risk and more volatile though.
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 focus on more mature 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
Our view on the Asia & Emerging Markets sector
Asian and emerging markets have gone from strength to strength.
Rapid industrialisation, growing populations, and a desire to succeed have helped transform developing countries into economic superpowers. Domestic consumption is set to be a key driver of growth over the coming years, helped by a young and growing population, and rising wealth.
These countries have also become hotbeds of innovation. Some countries are at the forefront of technology and many companies located there are overtaking Western competitors.
Our analysis suggests there’s a reasonable amount of value on offer in these markets at the moment. So it’s possible to buy shares at a good price compared with their future growth prospects. This relies on companies to continue to grow their earnings though.
Asian and emerging countries are quite different from each other, so this part of the world can be home to both the best and worst-performing global stock markets at any one time. That’s why we think a diversified approach is sensible when it comes to investing in these markets.
If you’re looking to invest in emerging markets for the first time we think a broad global emerging markets or Asian fund is likely to be a good starting point. Other funds could then be added to a portfolio for additional exposure to a particular theme, area, or country.
The HL Multi-Manager Asia & Emerging Markets Fund is available for investors who’d prefer experienced investors to pick the funds on their behalf. It has a core of funds that invest more broadly across the region. The managers then add funds focused on a more specific area if they find an exciting investment opportunity. This extra layer of management means there are additional charges with running a multi-manager fund. The fund is managed by our sister company, HL Fund Managers. It invests in companies of all sizes, including higher-risk smaller companies.
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.
Asian and emerging stock markets have grown around 6%* over the past year. But they’ve been volatile, especially so far this year.
The immediate worry is a fallout from a global trade war. This has been the main cause of the recent instability. But US dollar strength against other currencies has also unnerved investors. Emerging economies have a lot of dollar-denominated debt, and if the dollar continues to strengthen it would make it more expensive to pay off these debts.
More recently, Turkey’s spat with the US and a sharp decline in the Lira has left investors with another headache.
Asia and emerging stock markets - one year performance
Past performance is not a guide to future returns. Source: *Lipper IM, correct as at 31/07/2018.
So far China’s been the main target of US President Trump’s new trade policies, though it’s hard to know exactly how far markets will be affected until the full extent of the tariffs is clear. It’s worth remembering China’s more focused on domestic consumption than export-driven growth than it used to be. So the tariffs will have some impact, but they won’t necessarily be as severe as some people think.
We think China’s massive debts could be more of a concern. It needs to curb its debt surge and let growth slow to a more sustainable level. Otherwise it risks a crisis. It’s impossible to call when or if this might come to a head, but it’s worth bearing in mind the risks when it comes to investing in these markets.
Over the longer term these markets have performed exceptionally well and we’re excited about the long-term opportunities that lie ahead. Domestic consumption is expected to grow over the coming years and should be one of the main contributors to the region’s development. Ecommerce is likely to play a big part in this. It means companies can sell their products and services to a wider pool of people and this creates huge opportunities.
Performance will be volatile at times though and investors must be willing to ride out the uncertainties along the way.
|Annual percentage growth|
| July 13 -
| July 14 -
| July 15 -
| July 16 -
| July 17 -
|FTSE AW Asia Pacific ex Japan||7.3%||-0.9%||18.8%||23.8%||5.9%|
Past performance is not a guide to future returns. Source: Lipper IM to 31/07/2018
Our favourite funds in the sector
These funds invest in emerging markets, which tend to be higher risk than developed markets. For more information, please refer to the Key Investor Information for the specific fund. 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.
Other funds in this sector
To view a full list of our favourite funds within the sector, visit the Wealth 150.
Source for performance figures: Financial Express
This fund invests across a range of emerging countries and mainly focuses on larger companies. The managers look for companies they think will grow earnings sustainably.
The fund performed in line with the broader emerging markets over the past year. Investments in Chinese companies that rely on consumer spending for their earnings recently held back performance. But investments in the technology sector contributed positively to returns. The fund mainly invests in larger firms, but investments in medium-sized companies have increased slightly over the past year or so. The managers think these companies have better growth prospects and could help the fund’s long-term performance, though there’s no guarantees and past performance isn’t a guide to future returns.
This fund focuses on some of Asia’s largest businesses. The team look for companies in good financial health, run by robust and trustworthy management teams.
The fund didn’t grow quite as much as the broader Asian stock market over the past year. Some of China’s largest technology companies performed well over this time. But the managers have generally avoided these businesses, so the fund missed out on some of the gains made. A large part of the fund is still invested in the financials sector because the managers think they’ll benefit from increased demand from private consumers for financial products and services. The team have previously shown they’re able to pick some of Asia’ strongest-performing companies. They also have a lot of experience, so we think the fund could perform well over the long run. There’s no guarantees though.
Countries such as Brazil, Mexico and Chile mainly feature in this fund. The managers currently focus on companies that could benefit from domestic consumption.
It’s been a tough year so far for Latin American stock markets and this affected the fund. It’s also been hurt by the poor performance of some individual companies. For example, shares in Brazilian food company BRF were damaged by a recent truckers’ strike when it had to stop production at four of its processing plants. The team thinks Latin America’s long-term potential lies in the rising wealth of its middle class. So they’ve focused on companies that could benefit from increased spending, such as mall owners and banks. The risks are greater when investing in a specific area of the developing world, so a long-term investment horizon is essential.
Our favoured choice for investing purely in Indian companies. A focus on small and medium-sized companies makes this fund different from its peers focused on large businesses, though it increases risk.
Small and medium-sized Indian companies haven’t performed as well as larger businesses over the past year. This held back the fund’s performance. Some investments in the financials sector also haven’t helped. Avinash Vazirani is confident about their longer-term prospects because the Indian government is trying to increase the number of people with access to financial products and services. The fund’s also had some individual stock issues, including an investment in oil company Hindustan Petroleum. Overall the manager has aimed to invest in companies he believes will benefit from the significant change currently taking place in India, but this will be a gradual process. We’re encouraged by the manager’s longer track record and think he’ll identify some of India’s most successful companies over the long run. There are extra risks when investing in a single emerging country though.
This fund aims to track the performance of the FTSE World Asia ex Japan Index. This includes a broad range of companies from across the region.
The fund invests in around 560 larger companies based across Asia. This includes developed Asian countries such as Australia and Hong Kong, as well as less mature economies such as Taiwan and Malaysia. It’s tracked its index tightly and efficiently since its launch in 2005.
A fund that invests in companies listed in China, Hong Kong and Taiwan. The manager likes companies with a well-known brand and management team that have a great track record of running a business.
It’s been a volatile year for the Chinese stock market, but the fund has performed well. Commodity prices have risen over this time, which increased the cost of the raw materials needed for some companies to make their products. But a number of companies in the fund passed on these costs to customers through higher prices, without affecting demand. Tsingtao Brewery and home appliance company Gree Electric were able to do this. The fund has tended to be less volatile than the broader Chinese stock market and the manager has built a good long-term track record. The fund will fall as well as rise in value though so investors could get back less than they invest, and past performance isn’t a guide to future returns.
Broad exposure to the emerging markets, but with a focus on larger firms. Management teams must have a long-term outlook, rather than only trying to make short-term gains.
The shares of large Chinese technology companies have performed well over the past few years. But the managers have tended to avoid these businesses, so the fund hasn’t benefited from the rising share prices. A focus on consumer goods companies, which haven’t performed quite so well, also hasn’t helped. But over the longer term they could benefit from rising wealth and increased consumer spending across the emerging markets. Past performance isn’t a guide to future returns. We think the fund has the potential to perform well over the long run, but it doesn't currently feature on the Wealth 150+. This is because Aberdeen want to keep the fund a manageable size and have applied a 2% initial charge to invest in it.
Latest research updates
Please note the research updates are not personal recommendations to trade. If you are unsure of the suitability of an investment for your circumstances please seek advice. Remember all investments can fall as well as rise in value so investors could get back less than they invest.
Our expert research team provide regular updates on a wide range of funds.