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There’s beauty in diversity

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Insights and Market Perspectives

There’s beauty in diversity

Author: Regina Chi

March 22, 2019

Emerging Markets shouldn’t be viewed as a single asset class

There was a time, back in the 1990s, when Emerging Markets all seemed to be working from the same playbook. But these days, many EM countries are busy carving out their own path to the future while rewriting an outdated script.

Still, the perception that EM is one homogeneous asset class persists despite its evolution as a diverse group of countries with different opportunities, as well as risks and drivers. EM economies are evolving and many are stepping up the value-chain, each with their own economic cycle, political realities and market structure.

And while a number of macroeconomic forces sideswiped EM markets in 2018, many of those headwinds are now shifting to tailwinds. Not only are valuations in EM favourable, but GDP growth is forecast to outstrip that of Developed Markets in 2019. The upshot? There are lots of reasons for optimism as we look to EM this year. Yet, investors would do well to pick their spots, balancing the opportunities against the risks while investing in disparate EM countries.

The EM that was

Back in the 1980s and 1990s, EM countries were largely commodity-based economies, often with large account deficits—meaning they owed debt in US and European currencies making them particularly vulnerable to external macroeconomic policies. Early investors, who were initially intrigued by rapid rates of industrialization and soaring growth rates, later got spooked, caught in the cross-fire of a string of financial crises beginning with the Mexican Peso Crisis in 1994, followed by the East Asian financial crisis in 1997, and the Taper Tantrum in 2013. These shocks set off a negative chain reaction in the global economy, yet ultimately proved to be the catalyst for sweeping reforms in many EM countries. India, for example, began opening up large parts of its economy to foreign investment. Meanwhile, significant fiscal and monetary reforms were implemented in Asia, culminating in China’s entry into the World Trade Organization in 2001.

Rise of the new EM

Fast-forward to 2019 and the picture takes on a remarkably different and nuanced hue. Infrastructure-driven sectors, like industrials, materials and energy, are less important drivers of performance, while many EM economies have shifted into a new generation of growth based on technology and innovation, with a focus on higher value-goods and services. The recent explosion of China’s technological firepower, for example, coupled with its new strategic plan, Made in China 2025, has given rise to a designed-in-China model, some call “Chinnovation.” Meanwhile, other countries and regions like those in Latin American and South Africa are endowed with natural resources and still in the early stage of their development.

Reform is ongoing. Many countries are now issuing bonds in their own currencies, for example, while slashing debt loads and current account deficits. Many have also pursued other structural reforms to enhance fiscal discipline and shield their economies from external shocks, while bolstering markets for the future. Yet, other countries continue to be plagued by precarious economies and institutions with persistent structural imbalances.

By the numbers

A comparison of sector weightings on the MSCI Emerging Markets Index—representing 24 countries—tells the story of EMs remarkable transformation between 2008 and 2018. In 2008, for example, IT accounted for 10% of the Index, versus 27% last year; energy represented 19% in 2008, compared with 7% last year; and materials have fallen in their weighting to 8% from 16% a decade ago, according to MSCI figures.

Perhaps the most significant gauge of the current heterogeneity in EM, however, is the dramatic variance in stock market returns between countries. Over five years, between the end of January 2014 and as of January 31st, 2019, India’s market returns were up 79%, compared with 53% for Brazil and a decline of 10% in Turkey. Growth rate forecasts for 2019 are also widely divergent: 2.8% in South Africa, 5.1% in Egypt, and 7.5% in India, Bloomberg figures show.


With so much diversity, EM offers a unique opportunity to invest in a faster-growing and more diverse range of countries and sectors, yet this requires a selective approach, balancing opportunities against risks. In other words, prudent investors would be wise to recognize not just the beauty but the strength in EM’s diversity, while pursuing a long-term strategy.

Regina Chi is Vice-President and Portfolio Manager at AGF Investments Inc.


Commentaries contained herein are provided as a general source of information based on information available as of March 19, 2019 and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and the manager accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Investors are expected to obtain professional investment advice.
The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.
The MSCI information may only be used for your internal use, may not be reproduced or disseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.


About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit AGF.com.

© 2021 AGF Management Limited. All rights reserved.

Written by

Regina Chi

Regina Chi, CFA®

Vice-President and Portfolio Manager

AGF Investments Inc.

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