As interest rates remain low in the developed world -with some countries such as Japan, still submerged in negative territory-, and inflation rising, investors are desperately seeking yield. This has seen equities soar, despite global woes. Emerging markets, as an alternative asset class, can infuse blue sky into a portfolio; however, the risk undoubtedly increases. We will briefly look into two different ways to play these markets.
First, the low-hanging fruit. The MSCI Emerging Markets (EM) Index is used to measure the stock market performance within emerging economies. The Index was launched in 1988 including 10 countries with a weight of about 0.9% in the MSCI ACWI Index. Currently, it captures 26 countries and has a weight of 12% in the MSCI ACWI Index, with more than 1,300 large- and mid-cap securities. Many ETFs, such as Blackrock’s iShares MSCI Emerging Markets ETF, track this index.
Secondly, and with a different perspective, the equalising effect that the pandemic has had in terms of where companies are based, and employees live, built a bridge for founders from different parts of the world. These entrepreneurs are now able to access global consumers and capital. Startups similar to the already successful Rappi, originally from Colombia, terribly popular in South America as a flexible courier (and having raised over $1b from Soft Bank); investors such as Ingressive Capital, a Nigerian VC fund that invests across the continent; and Republic, a crowdfunding platform that allows the general public to invest in startups from as little as $100, are some interesting stories to keep an eye on, in this arena.
The location optionality, one of the most profound effects of the lockdowns, is forecasted to remain, even after the whole planet is vaccinated. Effective due diligence processes and tools, as well as expanded access to relevant research -and educational tools when necessary- will be fundamental to ensure that these strategies become cemented, allowing investors globally to access higher returns while being fully aware of the inherent risk.
Challenging, no doubt, but massive opportunities could be unlocked.
And that is it for today. See you next week!
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The Weekly by Synergy: 5-minute musings on the markets, current trends, and events. From our opinions, observations, analysis, and news commentary, just a few lines to get you started every week.
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