Investors Urged to Reconsider Emerging Market Investing

PGIM says a one-size-fits-all classification of emerging markets will become obsolete.

By PLANSPONSOR staff | June 20, 2017
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Emerging markets will collectively drive global growth over the next decade, but investors would be wise to reconsider how they approach these markets, according to PGIM, the global investment management businesses of Prudential Financial, Inc.

Increasingly, says PGIM, emerging markets will be the masters of their own economic fate, making a one-size-fits-all classification of emerging markets obsolete.

In a white paper, “Emerging Markets at the Crossroads,” PGIM argues the export-led, externally oriented growth model that propelled emerging markets forward since the 1980s has stalled. As aging populations reduce the long-term growth potential of developed markets, and the backlash against globalization and free trade continues, emerging markets will increasingly choose their own individual paths.

“Gone is the rising developed market tide that lifted all boats,” the firm says. Therefore, PGIM urges investors to embrace an active, locally informed investment approach that positions their portfolios for emerging market divergence, and takes advantage of the opportunities from the increasing resilience and declining contagion risk across many emerging markets. 

“We believe the opportunity will increasingly be to capture the alpha of outperforming emerging market sectors, themes and securities rather than chasing the beta of the broad emerging markets universe,” says Taimur Hyat, chief strategy officer, PGIM. “This requires building portfolios from the bottom up—the historical emerging market equity investing approach of rotating exposures to countries will no longer be adequate.”

NEXT: Themes underpinning emerging market investing going forward