UK – Pension funds are likely to increase their investment allocation to global emerging markets despite fears of a growing bubble, according to Aberdeen Asset Managers.

“We remain positive on global emerging markets, where economic and political reforms have restored investor confidence,” said Aberdeen emerging markets (ex-Asia) chief Joanne Irvine at a roundtable seminar in London.

According to an Aberdeen statement, “Despite growing disquiet that there may be a bubble developing in emerging markets, Aberdeen believes this cycle may be different, as emerging market economies now appear less vulnerable to external shocks.

“This is the result of stricter fiscal and monetary policies, which have kept inflation down, lowered borrowing costs and allowed more domestic funding of debt.”

Many pension schemes currently allocate around 5% of their equity portfolios to the asset class, stated Irvine.

“Over the coming years, more and more schemes will probably increase their allocations,” she told IPE on the sidelines of the event.

However, many pension funds still have a zero allocation, and the first step of investing in global emerging markets is “typically” a 5% allocation, Irvine added.

Aberdeen investment manager (emerging market equities ex-Asia) Mark Gordon-James said: “It’s the long term, it’s the future. China, India and Brazil are going to be major players. I think it’s a strategic asset allocation decision for pension funds.”

However, in news reports today, an industry commentator warned emerging market investors they could be “underestimating” the risks involved in emerging markets.

Institute for International Finance vice chairman and senior Citigroup banker Bill Rhodes was reported as saying: “The days of easy money are over.”

While Rhodes – one of those behind Brady bonds - didn’t state another Asian crisis was imminent, he warned in the report: “We are in a situation similar to that which existed in the spring of 1997, when threats existed to market stability and a lot of people didn’t want to see it.”

He urged lenders and investors to be “prudent”, while pushing governments to follow policies building on existing investor confidence.