Hey it’s nearly year-end. Review your portfolio NOW and make sure you are balanced and not missing out on emerging markets. As at Monday,24th November 2014

26 November 2014


 As at Monday,24th November 2014

What are emerging markets?

Emerging markets is an extremely broad term. It covers a multitude of possible investments.Morgan Stanley’s emerging market index currently consists of Argentina, Brazil, Chile, China, Columbia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey, and Venezuela. To this list you might reasonably add many of the Islands in the Caribbean.

Why invest in emerging markets?

Developing or emerging markets continue to be the driver for global growth. Deciding to invest in them boils down to one simple question.
Do you want to be invested in the economies and markets that are expected in the long term to drive the global economy forward?
Emerging economies are expected to continue to grow two to three times faster than the economies of the developed nations like the United States, the United Kingdom, Germany, and Japan. In quantitative terms 70% of the world’s economic growth in the next ten years will very likely come from emerging markets. Therefore ignoring the potential of an investment in emerging economies could be perilous to your long term financial health.There is one other distinct benefit of investing in emerging markets that is often overlooked by investors. Historically investments in emerging markets tend to perform differently to investments in developed markets. An investment in them therefore greatly assists with the diversification of your portfolio. Moreover most emerging markets have been successful at decoupling from the long term woes the mature economies have suffered as a result of the economic crash of 2008 and its attendant long-term hangover effects.

Perhaps the most important positive legacy of the 2008 crash is that a new world order in terms of economics and market dynamics has been born. Emerging market economies –as a direct consequence of the events of 2008 – have arrived as a powerful and essential driver of world economic growth. In essence they are, in economic terms, the significant driver of our long-term future.

Growth in the emerging markets has benefited the established economies too

Because corporate profits tend to grow faster when economic growth is higher most of the powerful and established companies and brands (the classic example being Apple) view emerging markets as most significant to their future. Selling in markets where the growth is highest just makes common sense.

Why emerging economies will drive future growth?

In comparative terms most emerging markets have “younger” populations that can contribute to the economy and adequately fund the income of those who have retired.
India and Brazil are classic examples of this. Both have a high ratio of working population to retired population. Compare this to the United States and the United Kingdom where serious concerns have arisen in the past five years questioning the ability of a shrinking working population to fund the income of a burgeoning retired population.
Of equal significance emerging markets, in overall terms, control a disproportionate share of natural resource wealth. Brazil is a classic example of this point being self-sufficient in oil and having the largest farmable area in the world. As the world economies continue to recover and as the demand for agricultural commodities begins to rise Brazil will be ideally placed as a supplier of sugar, coffee, chicken and beef to the world.
Countries that are rich in natural resources also tend to benefit as the emerging markets industrialise. China, a country not blessed with an adequate domestic supply of natural resources, has expanded economic activity drastically over the last ten years. Not surprisingly Brazil benefits from Chinas industrial activity since it is one of the world’s largest producers of iron ore and its biggest customer is China. Never before have the economies of the world been so interlinked.

The Future BIG Spenders

Currently consumers in the United States account for 25% of the world consumer spending but this percentage share is shrinking rapidly. In real terms Brazil, Russia, India and China are beginning to outspend the US, and as the emerging markets of Asia are home to nearly half of the worlds’ population this trend is likely to continue into the near future.

Is it time to review your portfolio?

As the year end fast approaches all of us should consider how our portfolio has performed in the year. There are many factors to consider and what fits for one investor will not necessarily fit for another. However there are some common factors that we should all consider.First, is your asset mix between equities, bonds, and cash giving you the growth you intended? Second, are you too heavily invested in equities, and within your equity portfolio are you adequately diversified to protect against shocks? Third, are you thinking globally? Have you considered emerging markets and the potential they have to drive the returns of your portfolio forward over the long term? Fourth, what is the real quality of your fixed income investments? Are you invested in bonds that are offering a high yield with regard to your particular appetite for risk? Fifth, are you adequately and efficiently investing your liquid reserves?

Firstline Securities Limited offers comprehensive coverage of local and international markets with a bias for the energy sector. Firstline offers a number of unique opportunities to put surplus cash to work either as your asset manager or investment advisor. Please contact us for more details at info@firstlinesecurities.com or at 868.628.1175, we can discuss your investment needs in detail and craft a portfolio that makes sense for you. We look forward to hearing from you.

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