Emerging markets will continue to drive global growth, but
investors will have to change the approaches they use if they
want to continue to profit from these dynamic markets,
according to new research that will be released this week from
PGIM, the asset management arm of Prudential Financial.
Taimur Hyat, chief strategy officer of PGIM, says investors
will no longer be able to bet on emerging markets as a whole,
but will instead need to rotate their investments across
foreign exchange, fixed income, equities, countries, and local
currencies among other factors.
For the last 40 to 50 years, emerging markets have
grown on the coattails of the developed world, but thats
over, says Hyat. PGIM says portfolios need to be built
from bottom-up securities selection as opposed to by country or
The PGIM research, which has been underway for about a year,
identifies several new areas that investors should focus on,
whether directly or through the managers they employ. Hyat says
broad market index investing, for one, will no longer work.
On the fixed income side, for example, investors end
up buying the most indebted countries in the world, he
says. In a world of divergence between emerging markets
and in a world where individual markets are not being pulled by
the same developed-markets growth story, you cant be
stuck in an index.
Institutional investors may be able to benefit from a
gradual re-rating that is taking place in emerging markets
debt, according to the PGIM research. Hyat says that move is
happening because these economies are more resilient
with a more diverse set of growth drivers, including demand
from their own populations for goods and services and
the markets are less subject to contagion risk, or the risk of
meltdowns in neighboring countries.
The low contagion risk and high resilience of these
countries hasnt been priced into securities, he
says. PGIM also says investment opportunities in emerging
markets are centered around trade between these countries
not with the developed world and the emergence of
new industries, such as travel and tourism, among the middle
When it comes to technology, PGIM says the best
opportunities, especially in financial tech, will be in the
more digitally advanced countries such as Brazil, China, and
India. In these countries, technological innovations will allow
people to avoid building expensive physical banks and other
institutions in some cases. The best opportunities will be in
e-commerce, as well as the distribution and other
infrastructure that online services require, such as warehouses
Hyat stresses that institutional investors are best
positioned to take advantage of other emerging markets
transitions, such as the maturing of local bond markets, and
potential new offerings, such as securitized debt. The real
estate sector also is expected to formalize, offering
institutions access to some domestic deals for the first
Despite enormous opportunities, Hyat says investors still
ask him about the right entry and exit points in emerging
markets as well as rising geopolitical risks.
But if you have a growth-seeking component to your
portfolio, investing in just developed markets wont cut
it, he says.