The Case for Emerging Markets
We believe investors are under-invested in private assets in emerging markets. Emerging markets form the bulk of the global economy, and they are less levered and distorted by quantitative easing than markets in the developed world. Emerging markets also have higher growth rates and often more policy dynamism, and they are less vulnerable to external disturbances than they were in the past, as their domestic savings are increasingly institutional, and their dependence on external capital has been much reduced.
Commodity and goods prices are increasingly set in emerging markets due to the fact these markets are home to 85% of the world’s population. One implication of emerging market price setting is that the liabilities of institutional investors, when considered in terms of purchasing power, increasingly lie in these markets. Investment exposure to emerging markets is therefore required to match these liabilities.
Richard DobbsNo ordinary Disruption (2015)
…we calculate that through 2030, the world needs to spend an estimated $57 trillion to $67 trillion on roads, buildings, rails, telecoms, ports and water just to enable expected economic growth.
Risk is multifaceted, but it is largely perceived as a measurable scale. U.S. and other developed market sovereign bonds are widely seen as ‘risk-free’, as other assets have higher returns in exchange for higher risk. From this convenient fiction comes the idea that, however risky a developed country is, and however over-valued their exchange rate happens to be, emerging market assets are always and everywhere riskier. It’s this misperception of risk that sustains emerging market allocation opportunities.