The changing face of the global economy means investors must break the shackles for better returns
The changing face of the global economy means investors must break the shackles of home bias for better returns.
That’s the view of Laurence Bensafi, deputy head of emerging markets, RBC GAM, who believes that, while she understands people’s reluctance to step out of their comfort zone, the asset class is simply too big to ignore.
She stresses not only the rewards of geographical diversification but also the different types of companies that are leading the way.
She said: “Emerging markets are now pretty much 70% of the world GDP and 70% of global growth. If you look at the global equity markets, including the emerging markets, emerging markets would represent 25% already. So just your natural allocation, if you just want to represent the reality of the world, would be 25%.”
Bensafi highlighted that soon at least half of the companies on the Fortune 500 will be from emerging markets.
“What is interesting is that these are not the ones that used to be there 10 years ago,” she said, adding that back then the firms in the spotlight were mainly energy-based.
“They are still there but they are not in the top 10 – not even in the top 20. The biggest companies in emerging markets are now Samsung Electronics, Alibaba, Tencent, you’ve got some Chinese banks, you’ve got big insurance companies, those types of things.
“They are completely different types of companies which I think you want to own because they are long term, value-creators operating in very big countries where there is a lot of growth. So you’re not this time playing some cyclical story – you know, I want to buy iron ore, natural gas – it’s a completely different story; you are buying a more domestic story.
“And that should really be in people’s portfolios, being all across the planet in order to bring diversification, higher growth and higher returns.”
Bensafi said the message to diversify global allocation is a message she has been preaching for a very long time. She cites the UK as an example where investors typically own 80% of UK equities, with the rest being made up of global and emerging markets.
She said: “Everywhere we go it’s the same story. It’s natural and I totally understand people investing in something they know, and a lot of people don’t know emerging markets. So we spend a lot of time educating people and saying, actually it’s not as scary as you think.
“Especially right now, things have really changed over the past few years and it actually consists of a lot of companies they have heard about or use on a daily basis.”