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It is important to remember that the EM market is not the same as ten years ago, or even the decade before that. Since the significant outperformance of the early 2000s1, the shape of the asset class has changed. Information technology is the largest sector allocation in the asset class and commodities no longer dominate2.
Consumer-focused industries, represented by consumer discretionary stocks also represent a meaningful component of the index as we have seen tremendous growth in per-capita incomes in all of the major EM economies. Finally, we have seen the impact of the digital era as billions of consumers have been able to access new consumption opportunities within e-commerce, gaming, and digital finance.
Despite the headwinds facing EM recently, in our view, the landscape is now positively shifting and this Emerging Markets: An Evolving Landscape series will explore the key drivers with the potential to dictate the future of the asset class:
Sources
1Source: Morningstar: MSCI EM NR USD, MSCI EAFE NR USD, MSCI USA NR USD: 31 December 2000 – 31 December 2023
2Source: Factset as at 21 May 2024.
3Source: Morningstar: MSCI EM NR USD, MSCI EAFE NR USD, MSCI USA NR USD: 31 December 2000 – 31 December 2023.
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Risk warnings – Investors should also be aware of the following risk factors which may be applicable to the strategy shown in this document.
All investments involve risk including the potential for loss.
- Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment.
- This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the strategy’s value than if it held a larger number of investments.
- Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile.
- Emerging markets or less developed countries may face more political, economic or structural challenges than developed countries. Accordingly, investment in emerging markets is generally characterised by higher levels of risk than investment in fully developed markets.
- The strategy may invest in derivatives Index futures and FX forwards to obtain, increase or reduce exposure to underlying assets. The use of derivatives may result in greater fluctuations of returns due to the value of the derivative not moving in line with the underlying asset. Certain types of derivatives can be difficult to purchase or sell in certain market conditions.
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