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Investment Times

The new engine of global growth

| 6 April 2015 | A A A
The new engine of global growth

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

While the United States remains the world's largest economy, Asian and emerging economies are catching up fast. 70% of global growth is expected to come from emerging markets over the next few years according to the IMF. By 2050, it is estimated the two biggest global economies will be India and China (on a purchasing power parity basis) and together they will be twice the size of the US economy.

Together, Asian and emerging markets form a true economic powerhouse. Home to 85% of the world's population, emerging countries have undergone rapid economic growth and industrialisation in recent decades - by 2020, its population is expected to grow at three times the rate of developed economies.

Long-term growth should be underpinned by a youthful and increasingly well-educated population. Fuelled by an expanding middle class, they should continue to see rising demand for products and services. In fact, consumer spending growth in emerging markets has already outpaced that of developed countries every year since 2000.

That is not to say the emerging world is without its share of problems. For this reason investment in the region should be seen as long-term and higher risk.

Find out more about the new Hargreaves Lansdown Multi-Manager Asia & Emerging Markets Fund

Weaker commodity prices present a challenge for the world's largest commodity exporters such as Russia and Brazil. Yet lower oil prices should prove positive for the region as a whole. 86% of emerging markets are net importers of oil - lower fuel, energy and raw materials prices could prove one of the biggest boosts to consumers and businesses this year.

The region's transition has slowed significantly in recent years, partly as China is rebalancing its economy from an investment-heavy, export-led model to one reliant on domestic consumption. This had led to a period of underperformance relative to its developed market counterparts. Yet this means broader emerging and Asian markets are now relatively undervalued, according to our analysis, allowing investors to buy shares in many of them at attractive prices, although they could fall further.

When investing in an area as diverse as the emerging and Asia Pacific nations, we believe a multi-manager approach could excel. Our new HL Multi-Manager Asia & Emerging Markets Fund will provide exposure to a multitude of countries and companies. It will be managed by our experienced research team; choosing and monitoring what they believe to be the best funds in the region.

Like the rest of the world Asian and emerging economies will face headwinds in the short term so investors need to be brave and keep focus on the bigger picture. The long-term outlook remains robust and, in our view, the HL Multi-Manager Asia & Emerging Markets Fund is great for broad exposure to this vast high risk region, where opportunities are plentiful.

Please note the deadline to invest in this fund at launch is 5pm on 28 April.

Find out more about the new Hargreaves Lansdown Multi-Manager Asia & Emerging Markets Fund

HL Multi-Manager Asia & Emerging Markets Fund Key Features

Please note this fund is managed by our sister company Hargreaves Lansdown Fund Managers.

Relative valuations in Asia and emerging markets

Source: Datastream, data correct as at 16 March 2015

The chart above looks at the relative value in markets compared to before the global financial crisis in 2008.

To measure value we’ve used the Price-to-Earnings (P/E) ratio, which essentially measures how much investors are prepared to pay for a company’s earnings. A high P/E ratio means that investors are prepared to pay a higher price, which can suggest shares look expensive. A low P/E can suggest shares look undervalued.

In this example we can see that Asia and Emerging Markets are trading at a discount to their pre-financial crisis levels, while other areas of the world are trading at a relative premium. We believe this is an opportunity for those considering an investment in Asia and Emerging Markets, although prices could still fall further. Ratios should not be looked at in isolation and other factors should be considered before investing.

Read an explanation of P/E ratios

P/E ratios explained

To measure value we've used the Price-to-Earnings (P/E) ratio, which essentially measures how much investors are prepared to pay for a company's earnings. A high P/E ratio means that investors are prepared to pay a higher price, which can suggest shares look expensive. A low P/E can suggest shares look undervalued.

The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.