Asset Management

Why invest into emerging markets?

White Paper
Emerging Markets

Emerging market assets have always been alluring to investors because of their attractive risk-return characteristics. Nevertheless, investors dedicated only marginal portfolio allocations to this asset class in the past. However, recently, these allocations have been rising. Current estimates on Swiss pension fund allocations to emerging markets range from 5 to 7 % and they continue to grow. Dutch pension funds have already taken a leap forward by allocating as much as 15 % to emerging markets. This indicates that acceptance among investors of emerging markets as an asset class is increasing and also reflects the fact that emerging markets are now treated as a separate category. For example, leading Swiss pension fund indices, such as the Pictet BVG 2015 Index family, now include a separate emerging market bond component of 5% for all client risk profiles. However, our view is that for many investors, an allocation of 5 % is far too low.

Growing strategic allocations to emerging markets come with challenges. This paper sheds light on the forces driving the fundamentals of emerging markets on a strategic level and challenges some of the most common beliefs that investors hold on emerging market equities and bonds. Then, we reveal the key factors to consider when defining your emerging market investment approach.

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