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IPE special report May 2018

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Experts champion investment in emerging markets as way to cut risk

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Investment in emerging markets, rather than being an inherently high-risk way to invest as it is sometimes perceived, is a means for pension funds and other big investors to reduce their overall portfolio risk, experts in the field told a conference.

Jerome Booth, chairman of New Sparta Holdings and a specialist on emerging market investment, told the IPE Conference & Awards in Barcelona: “People should be investing in emerging markets to reduce risk.”

Addressing concerns that falling commodity prices could hit emerging market economies, Booth countered that many of these markets were commodity importers.

“Political risk is not an emerging market phenomenon – corruption is not an emerging market phenomenon,” he added.

“The real difference is that the risk is perceived, whereas, in the developed world, there’s also risk that isn’t perceived, and that’s the problem.”

He said he did not expect an exit of investors from these markets.

“I can’t think of a single scenario where money would leave emerging markets or the bulk of them, and go to the West,” he said.

He said this was because he could not think of a single event that was not going to affect the West at least as severely as the emerging countries.

“The chance of Brazil defaulting on its sovereign debt is next to zero,” he said. “There are countries in Europe where there are higher chances of that happening.”

Mohammed Hanif, chief executive and CIO of emerging market specialist Insparo Asset Management, said that, in the long term, investors could not afford to ignore emerging markets.

“It is a fact it is more than 50% of the world’s GDP, and it’s growing,” he said.

“That shift is taking place, but, in the meantime, it’s not going to be a straight line.”

He said short-term aberrations did take place in emerging markets and that these were opportunities for investment, adding that there was no doubt these markets had suffered from cuts in commodities prices.

“There is another side to that,” he said. “We could talk about energy prices and oil prices – that’s a drag on consumption, so (…) consumption could increase as a result of lower energy prices in emerging markets that have a young demographic.”

Hanif argued that emerging markets were not in a financial crisis, so there was no collapse in growth due to this. 

“What we are seeing is the challenge of weaker growth,” he said.

Booth argued that emerging markets gave investors a fundamental diversification from what was going on in the rest of the world.

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