Evidence suggests that investing in emerging markets could deliver favourable returns and opportunities for greater portfolio diversification longer-term
Goods and services from emerging market economies are vital to the every day lives of people across the UK. However, despite this being the case, UK investors are not actively investing in companies from these economies. This is according to research from Templeton Emerging Markets Investment Trust (TEMIT).
The research shows that 38% of consumers reported ‘positive feelings’ towards emerging markets, while a mere 11% actively invest in emerging markets. This is despite 93% of people confirming that they use at the least one product from an emerging market on a daily basis.
TEMIT provided examples including a TV or washing machine made by Samsung in South Korea, or a 5G chip for their mobile phone manufactured in Taiwan.
Detailed research concluded that usage of emerging market products found that 27.3m UK adults watch a Samsung TV (based in South Korea), while 19% of adults use Beko products in their home (a company based in the emerging market of Turkey).
|Product||Daily Users of Product||Number Hesitant to Invest in Emerging Markets|
|Samsung TV (South Korea)||41%||56%|
|Samsung Phone (South Korea)||36%||52%|
|Apple Phone (EM exposed)||37%||59%|
|Beko tumble dryer (Turkey)||19%||60%|
Chetan Sehgal, Lead Portfolio Manager at Templeton Emerging Markets Investment Trust, commented on the opportunity cost of not investing in emerging markets: “Not actively investing in emerging markets could mean consumers are missing out on significant growth potential for their investments. Investing in emerging markets offers many benefits compared to their developed-world competitors. The strength in their economies is driven by innovative, high technology companies and strong consumption patterns, meaning that their growth potential is far superior.”
“But looking under the hood into what consumers think of emerging markets, we’ve found that perceptions are holding them back from investing in them. As a result, many opportunities to participate in the projected growth in some of the world’s fasted growing economies, while taking advantage of global diversification, are often overlooked.”
To provide additional context, TEMIT the returns on a cash savings account, the FTSE 100 and the passively managed MSCI Emerging Markets Index. With a monthly investment of £50 over a period of 18 years, equalling a total investment of £10,800, a cash savings account would return £11,176. While over the same period of time, TEMIT said the FTSE 100 would have returned £18,987, while the MSCI Emerging Markets Index would have returned £27,859.
“Overall, the evidence suggests that investing in emerging markets could deliver favourable returns and opportunities for greater portfolio diversification longer-term, in large part because of their exposure to innovation and a growing middle class, and thus growth potential,” Seghal said.