How variety could be the spice of long-term investing
Investors could rarely achieve their investment goals by focusing on just one asset. Find out why.
Spring has just arrived and this could be the season to refresh portfolios and reconsider the potential opportunities that different asset classes could offer. With the market’s current tilt towards risk assets, alongside a weakening USD, EM equities generally springs to mind.
EM equities in a multi-income portfolio
Emerging markets could offer a range of different investment opportunities.
In terms of the public health crisis, some EM economies are among locations with the highest number of infections2, while others are regaining their growth momentum after containing subsequent waves of new cases. This is reflected in the returns of EM equities in global markets3.
Generally, it is the inefficiencies in emerging markets that makes employing an active approach crucial. Additionally, with rates likely to stay low for longer and posing a challenge to long-term investors, the continuing evolution of EM stock markets could offer diversification4 potential and structural growth opportunities.
Global equity performance by region3
The consumer is emerging in emerging markets
The middle class is expanding rapidly in emerging markets and consumption will likely be a key economic driver going forward.
Growth of the middle class5
Consumers who have accumulated wealth are turning their focus on retirement planning and medical insurances. Such moves can deepen the development of structural growth themes such as healthcare. Rising demand for technological products and services, alongside the adoption of technology such as cloud computing, artificial intelligence, autonomous cars and 5G could also benefit some emerging market leaders.
A global recovery, alongside a sustained medical solution to the health crisis, could also spur greater consumer demand and recovery in select sectors such as travel and tourism.
The USD and emerging markets
Another factor that is conducive for an exposure to emerging markets is the USD, which has been on a weakening trend.
For some EM economies, a weakening USD could help lower the debt-servicing costs of international dollar debt borrowers. Moreover, we believe inflation is likely to remain low in emerging markets as major central banks are likely to keep rates lower for longer.
Higher demand for commodities as economic activities resume, could also lift export values for natural resources, benefiting oil and metal exporters in some EM economies and supporting growth.
USD and interest rate differential6
Expanding exposure of equities in JPMorgan Multi Income Fund
Equity allocation change of JPMorgan Multi Income Fund7
The effective distribution of vaccines could be a boon for some EM economies, enabling a sustained return to growth in 2021. This could also improve the prospects of some quality, large and cyclical companies, which alongside a weakening USD, stand to benefit from the recovery.