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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 - Senior Investment Analyst
10 September 2021

Asian and emerging market investing can give you access to a broad range of countries. From Asia to Eastern Europe, and South Africa to Latin America, these regions offer a range of countries at different stages of economic development. Some are rich in commodities and natural resources, some rely on exporting goods to Western economies, and others have vibrant local consumer-driven growth.

These markets have grown rapidly in recent decades. As young, emerging economies, they tend to offer greater growth opportunities than the West. This comes with higher investment risk and more volatility 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 mature economies, including Hong Kong, Singapore and Australia
  • Regional funds – others focus on a specific region such as Latin America, including Brazil and Chile, or Eastern Europe, which includes Russia
  • Country funds - these funds mainly focus on individual countries, such as India or China

HL View

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.

More recently, these markets, along with the rest of the world, have had to contend with the coronavirus pandemic. It’s a reminder the path to economic prosperity can be unpredictable and volatile at times.

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 and are happy with the associated risks of doing so, 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.

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.

Wealth Shortlist funds in this sector

Funds chosen by our analysts for their long-term performance potential

See the Wealth shortlist

Most Asian and emerging markets made money over the past year, with the FTSE Asia Pacific ex Japan and FTSE Emerging stock markets growing 14.5%* and 11.6%, respectively. As always, past performance is not a guide to future returns.

Not all markets have grown over this time though. Over the past year, the FTSE China index has lost 4.9%, impacted by recent policy announcements in the education sector. It was recently announced that all companies providing private tutoring services must register as non-profit institutions, they can no longer accept foreign investment, and tutoring will be prohibited on weekends, public holidays and school breaks. After the news broke, many of China’s private education companies, including TAL Education and New Oriental Education, saw swift share price falls.

The outlook for these education companies remains uncertain. The recent crackdown has also raised concerns about further regulatory risks in other sectors, including Chinese internet companies that have proved highly successful in recent years.

In some ways, China’s regulators are behind the curve and now playing catch up with regulation implemented by the world’s more mature economies. The authorities still want to promote innovation and entrepreneurship. But they want to see healthy competition too and ensure that the next cohort of innovators has space to flourish and add to China’s economic prosperity.

If anything, the recent bout of intervention is a reminder of the political and regulatory implications that exist across all emerging markets. This can lead to heightened stock market volatility at times, something investors should be prepared for when investing in these potentially high-growth, but higher-risk, markets.

On the other hand, South Korea’s market has been one of the strongest over this time, rising 40.9%. The FTSE India isn’t far behind with gains of 38.2%, despite having to deal with a second wave of the virus earlier in the year. Much of its economy remained open this time around, which meant businesses weren’t put under so much pressure.

Past performance is not a guide to future returns. Source: *Lipper IM, correct as at 31/07/2021.

Latin American markets have grown 19.5% over the year, while the Eastern European (including Russia) market also bucked last year’s trend and rose 29.9%. A rising oil price has helped the oil exporting countries in these regions.

Markets are likely to still be volatile at times though. Especially as most countries are battling rising infection rates or haven’t been able to rollout their vaccination programmes quickly enough. Some have been forced into fresh lockdowns, which puts the brakes on some businesses receiving regular custom.

It’s difficult terrain for investors to navigate. Over the longer term we expect these markets to offer lots of growth potential. Rising wealth could help towards the next stage of growth, and these markets are also supported by hard working populations keen to catch up with consumers in the west. This could help companies across a range of sectors, including technology, retail and financial services. That said, like all global markets, uncertainty is likely to persist. A long-term view of at least 5-10 years should be taken when investing in these markets.

Name % Growth % Growth % Growth % Growth % Growth
31/07/2016 To 31/07/2017 31/07/2017 To 31/07/2018 31/07/2018 To 31/07/2019 31/07/2019 To 31/07/2020 31/07/2020 To 31/07/2021
FTSE Asia Pacific ex Japan 23.8 5.9 5.5 1.9 15.6
FTSE China 32.6 8.9 2.0 17.5 -4.9
FTSE Emerging 22.4 5.7 7.7 -1.1 12.6
FTSE India 24.2 5.6 0.9 -8.6 38.2
FTSE Korea 31.9 -0.4 -6.9 7.8 40.9

Past performance is not a guide to the future. Source: *Lipper IM to 31/07/2021.

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 Asia Pacific ex Japan

    +63.9%

  • FTSE Emerging

    +57.5%

Data correct as at 31/07/2021. Please remember past performance is not a guide to future returns.

Our Wealth Shortlist features a number of funds from this sector, selected by our analysts for their long-term performance potential. The Shortlist is designed to help investors build and maintain diversified portfolios. To use the Shortlist, you should be comfortable deciding if a fund fits your investment goals and attitude to risk. For investors who don't feel comfortable building and maintaining their own portfolio we offer ready-made solutions, which are aligned to broad investment objectives. For those who want personal recommendations, you can also ask us for financial advice. Please note these funds invest in emerging markets, which increases risk.

The fund reviews below are provided for your interest but are not a guide to how you should invest. For more information, please refer to the Key Investor Information for the specific fund. Remember all investments and income from them can fall as well as rise in value so you could get back less than you invest. Past performance is not a guide to the future.

There is a tiered charge to hold funds on the HL platform. It is a maximum of 0.45% a year - view our charges. Comments are correct as at 31 July 2021.

Wealth Shortlist fund reviews

This fund focuses on the Indian stock market, with a bias towards smaller companies. We think India has excellent long-term growth potential, though a fund focused on a single emerging country is a high-risk option so it should only make up a small portion of an investment portfolio. This fund could sit well alongside those that invest across the globe or more broadly across Asia. Investments in smaller companies could boost growth but are also higher risk, so a long investment outlook is essential.

Vazirani has delivered strong returns for investors since his fund management career began more than two decades ago. However, from 2018-20 the share prices of smaller businesses were much weaker than larger ones and this hurt the fund. Some of the manager's individual stock picks also haven't gone well over this time. Over the past year though, the fund has performed strongly, outperforming the broader Indian stock market. Remember past performance isn’t a guide to future returns.

Overall, we like the fact Jupiter India invests differently. This gives it the potential to perform better than the Indian market, as it has done over longer periods, though the reverse is also true.

This fund aims to pay a regular income and grow an investment over the long term. It could form part of an income portfolio, or help to diversify the Asian portion of a global portfolio. If you choose to reinvest any income, it could boost future growth potential.

Jason Pidcock is one of the first UK fund managers to run an Asian fund focused on income, rather than purely growth. He set up his first Asian income fund in 1995 and has since built a strong reputation in this space. The manager likes to keep things simple and looks for companies that pay an attractive income, and have the potential to grow dividends over time. Companies that make plenty of cash, have low levels of debt and are in good financial health are favoured. They should also be run by robust management teams, and having regular contact with them is key to the manager's process.

This fund invests in a fairly small number of companies, which increases risk. Its charges are taken from capital, which could boost income but erode the potential for capital growth.

This fund invests in developed Asian economies, such as Singapore and Hong Kong, as well as emerging countries including India and Taiwan. The managers try to achieve more stable returns compared with others in the Asia sector, so the fund could fit with other Asian funds that use a different or more adventurous investment approach, or form part of a broader global portfolio with a long-term outlook.

Martin Lau is the fund's lead manager. He's one of the industry's most highly regarded Asian fund managers and has invested in the region for more than two decades. He has an excellent long-term track record, and runs the fund in a conservative way. It means the fund has tended to hold up relatively well when markets have been rocky, but has lagged behind when they’ve risen strongly. Past performance isn’t a guide to future returns.

At the moment the fund mainly focuses on sectors that could benefit from rising consumer spending, such as technology, financials, and companies that produce consumer staples such as food and beverages.

This fund focuses on the Greater China region, and invests in companies based in, or that carry out most of their business in, China, Hong Kong or Taiwan. It could form part of a broader global portfolio, or diversify the Asian and emerging markets equities portion. We think China has excellent long-term growth potential, though a fund focused on a single emerging country is a high-risk option so investors should expect volatility and it should only make up a small portion of an investment portfolio. While it mainly invests in larger companies, the fund can also invest in higher-risk smaller companies.

This fund is run by a manager and team with a great pedigree of investing in China. Martin Lau, the fund's lead manager, has an impressive record in this sector, and he also has the support of other experienced investors. We like the team's culture and philosophy - they view themselves as stewards of investors' capital, looking after it as though it's their own.

Lau and his team are conservative in the way they manage money and they aim to limit losses in a falling market. They do this by investing in companies they think will see consistent demand for their products or services and prosper over the long term, rather than chasing short-term fads.

This fund invests in smaller businesses that are based in Asian and emerging markets, or make most of their money in these areas. Smaller and more innovative businesses offer lots of growth potential, but they're higher risk because they're at an earlier stage of their development. The fund could therefore be used in a portfolio that's in search of higher potential long-term returns, but can accept more volatility. We think it could fit well with Asian and emerging markets funds focused on larger firms, but should only form a smaller part of an investment portfolio.

Matthew Dobbs stepped back from managing this fund on 1 January 2021. Dobbs' long-term colleagues Robin Parbrook and Alex Deane took over as co-managers. Dobbs has delivered excellent performance across his funds over the years so it’s disappointing to see him step back, but he has committed to continuing to work with the new managers until the end of 2021, offering guidance where needed. Parbrook is another experienced manager, having joined Schroders in 1990. Deane has less experience, though has worked closely with Dobbs since joining Schroders in 2015. The new fund managers will use the same long-standing investment process.

This fund aims to provide growth by investing in larger companies across Asia, based in countries such as China, Taiwan and South Korea. It could fit a broader investment portfolio that can have some exposure to a more adventurous fund, which includes higher-risk emerging markets and smaller companies, in the pursuit of long-term growth. The fund could be used as part of a globally diversified portfolio and provide key exposure to Asian markets. The potential use of derivatives also increases risk.

Matthew Dobbs stepped back from managing this fund on 31 March 2021. His long-term colleague Richard Sennitt took over as lead manager, with support from Abbas Barkhordar. While it’s disappointing to see Dobbs step back, he has committed to continuing to work with the new managers until the end of 2021, offering guidance where needed. Sennitt is also experienced, having joined Schroders in 1994 to cover Far Eastern markets. Barkhordar joined Schroders in 2007 and has since been an analyst on the Emerging Markets Equities team. The new fund managers will use the same long-standing investment process, and continue to work closely with the wider Asian Equities team.

This fund aims to track the performance of the broader emerging stock market, as measured by the FTSE All-World Emerging Index. It's currently made up of around 1,600 companies, and is focused towards sectors such as financials, technology and consumer-related businesses. A small part of this fund invests in smaller companies which are higher-risk than their larger counterparts.

The fund invests across emerging countries, including China, India, Brazil, South Africa and Taiwan. We think it's a convenient way to invest in the emerging markets, and could be used as a way to diversify a long-term, global investment portfolio.

This fund aims to track the performance of the broader Asian stock market, as measured by the FTSE World Asia Pacific ex Japan Index. It's currently made up of around 600 companies, and is focused towards sectors such as financials, technology and industrial businesses.

The fund invests across the Asia Pacific region, which includes developed countries such as Hong Kong, Singapore, and Australia, as well as less mature economies like Taiwan and Malaysia. We think the fund's a convenient way to invest in Asian markets, and could be used to diversify a long-term, global investment portfolio.

This fund provides broad exposure to the emerging markets, which makes it a more adventurous way to try to grow your wealth over the long term. It could help diversify a global portfolio focused on long-term growth, and sit well next to funds that mainly invest in developed markets.

The fund has outperformed the broader emerging stock market since launch. This is no mean feat as most emerging markets funds struggle to grow more than this benchmark over such a prolonged period. There have been periods when the fund has underperformed though, and this will happen at times in the future too. Remember past performance isn't a guide to future returns.

Leon Eidelman is lead manager of this fund, alongside co-manager Austin Forey. While the managers have plenty of experience investing in emerging markets between them, they also draw on a well-resourced team for ideas and analysis. They look for high-quality companies they believe can sustain earnings growth over the long term.

This fund focuses specifically on the Indian Subcontinent, with the aim to provide long-term investment growth. It mainly invests in Indian companies, though it can also invest in Pakistan, Sri Lanka and Bangladesh. We think the fund could sit well alongside those that invest across the globe or more broadly across Asia. India has excellent long-term growth potential, but a fund focused on a single emerging country is a high-risk option so it should only be considered as a small portion of an investment portfolio.

Sashi Reddy and David Gait manage the fund. They are both highly experienced fund managers in Indian and Asian equities. We like their focus on stewardship, sustainability and high-quality companies. They like cash-generative businesses, which are in good financial health which they think could withstand periods of economic volatility. The managers also put emphasis on businesses' people and culture, and only invest in companies they believe are run by management teams with integrity. They also invest in some smaller companies, which are higher risk than their larger counterparts.

This fund invests in a wide range of Asian markets, including both established and less-developed economies such as China, India and Taiwan. This means it could provide broad exposure to the Asia Pacific region and help diversify a global portfolio with a long-term view. Funds that focus on other regions, or specific countries, could be added alongside this one as part of a broader investment portfolio.

Aberdeen Standard Investments is home to one of the most experienced teams investing in Asian companies. Hugh Young is Managing Director of the Asian equities group. He was instrumental in setting up the group's Asian equities strategy, including the launch of this fund in 1987. While he no longer makes the day-to-day decisions over the construction of the fund, he carries out research that can be utilised by the team and we view it positively that he's still a part of the wider team. Flavia Cheong is Head of Asia Pacific Equities and leads the team of five directly looking after the fund, with key input into its final construction.

Companies in good financial health, run by robust and trustworthy management teams are favoured by the team. They often look for a change that could help boost profits in future, such as a new product or change in the use of technology. They sometimes invest in out-of-favour companies that can be bought at a more attractive share price.

This specialist fund focuses on the main markets of Latin America, including Brazil, Mexico, Chile and Peru. We think it could provide a way to diversify a portfolio invested in broader global or emerging markets funds. Higher volatility and risk should be expected from a fund like this, given it focuses on a small group of emerging economies. It should therefore only be considered to form a small part of a wider investment portfolio, focused on long-term growth.

The fund is run by a team with one of the longest records of investing in a dedicated Latin American fund. We like their long-term focus, but willingness to be flexible in the hunt for the best opportunities. They aim to find companies that can generate fairly steady rates of growth, which have been overlooked by others, and hold onto them for many years.

The fund currently has a bias towards consumer-related businesses that could benefit from rising wealth and consumer spending, but the team aims to have at least some exposure to most major sectors.

Latest research updates

Jupiter India: September 2021 fund update

Jupiter India: September 2021 fund update

Mon 13 September 2021

In this fund update, Senior Investment Analyst Kate Marshall shares our analysis on the manager, process, culture, cost and performance of the Jupiter India Fund.

FSSA Greater China Growth: May 2021 fund update

FSSA Greater China Growth: May 2021 fund update

Mon 24 May 2021

In this fund update, Senior Investment Analyst Kate Marshall shares our analysis on the manager, process, culture, cost and performance of the FSSA Greater China Growth fund.

Stewart Investors Indian Subcontinent Sustainability: May 2021 fund update

Stewart Investors Indian Subcontinent Sustainability: May 2021 fund update

Wed 12 May 2021

In this fund update, Senior Investment Analyst Kate Marshall shares our analysis on the manager, process, culture, cost and performance of the Stewart Investors Indian Subcontinent Sustainability fund.

iShares Pacific ex Japan Equity Index: April 2021 Fund Update

iShares Pacific ex Japan Equity Index: April 2021 Fund Update

Tue 27 April 2021

In this update, Passive Investment Analyst Alex Watkins shares our analysis on the manager, process, culture, cost and performance of the iShares Pacific ex Japan Equity Index Fund.

ASI Latin American Equity: April 2021 fund update

ASI Latin American Equity: April 2021 fund update

Fri 23 April 2021

In this newly enhanced fund update, Senior Investment Analyst Kate Marshall shares our analysis on the manager, process, culture, cost and performance of the ASI Latin American Equity fund.

Investment notes

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.

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