I listened to an interesting webcast this morning from Invesco Perpetual, where their Chief Economist and Chief Investment Officer were answering questions from advisers about the outlook for 2014.
One of the questions addressed looking at whether emerging market equity valuations were attractive given their recent pullback.
In contrast to a rally this year for equities in developed markets, emerging market equities have fallen in value, with the MSCI emerging equities index down by around 5% since the start of this year.
The experts at Invesco concluded that valuations did look more attractive, particularly when this equity market fall was combined with a big currency fall. They believe now is the time to take the long-view.
What was also interesting was their claim that BRICs has been replaced by BIITS for investors in emerging market economies.
BRIC refers to Brazil, Russia, India and China; four emerging market economies which were originally deemed to be at a similar stage of development.
The acronym was coined by Jim O’Neill in 2001 and has since spawned the launch of several big name investment funds which invest solely in these countries.
BIITS on the other hand refers to Brazil, India, Indonesia, Turkey and South Africa.
This new acronym was invented by Alan Ruskin who described them as the ‘fragile five’ of the global economy.
Of course with fragility comes risk, and with risk comes the potential for bigger rewards.
What the emergence of BIITS might represent for emerging market investors is a decoupling of the fortunes of the various emerging market economies. They used to move in tandem but now their individual fortunes are becoming more relevant.
There is a place for active fund management to ensure investors are not exposed to emerging markets as a whole.
An active fund manager, who is not wed to a particular benchmark or index, can weight his or her portfolio according to where the opportunities exist, whether that be in BIITS, BRICs or somewhere else.
