Mirae Asset Global Investments Issues White Paper:
Seven Reasons to Consider Investing in Emerging Markets
November 29, 2011
In this time of great uncertainty in the global markets and sustained slow growth among developed nations, Mirae Asset Global Investments today announced the release of its latest white paper outlining seven key observations about the potential advantages of investing in emerging market economies.
In the recent publication, "Seven Reasons to Consider Emerging Markets," Peter Lee, PhD, CFA, Mirae Asset Global Investments' Head of Emerging Market Strategy, shares his team's insight on the growth potential that is characteristic of emerging markets.
"Investors are now faced with an environment of increased risks and uncertainties, such as political gridlock growth in the U.S. and sovereign debt crises in Europe," said Dr. Lee. "In the long run, because of the seven growth factors cited in this white paper, we anticipate that global financial markets will fully reflect emerging markets' improving fundamentals."
The seven reasons outlined in the research are listed below. More information can be found in the white paper beginning on the page number listed after each point.
- Higher personal savings rates enable self-financing of capital expenditures and future consumption expansion. (p.4)
- The average five-year personal savings rate in emerging markets is 18.9%, much higher than the developed market average of 9.7%.
- Demographic opportunities in youth vs. elderly dependency ratios can yield "demographic dividends" in the years ahead. (p.6)
- Demographic dividend factors include a higher youth dependency ratio, a lower elder dependency ratio, and a higher working-age ratio which makes a population well-positioned for future consumption and economic productivity.
- Undervalued currencies increase competitiveness and profitability of products and companies. (p.7)
- Emerging market currencies are undervalued by an average of 38%, while the corresponding countries are enjoying trade account surpluses and high economic growth.
- Healthier public-sector balance sheets allow for use of additional instruments to boost economic growth. (p.9)
- The average government debt-to-GDP ratio1 in emerging market nations is only 35.8% compared with the developed market average of 101.7%.
- Enhanced sovereign credit quality led many emerging nation debt ratings to achieve investment-grade status. (p.10)
- While only 11 of the MSCI Emerging Markets Index2 constituent markets could claim investment-grade status in the year 2000, that number has increased to 17 of the current 21 constituents.
- Additional potential for growth in their equity markets, given that market capitalization-to-GDP ratios3 have remained lower than in developed markets. (p. 11)
- The connection between the size of equity markets and the size of the economy is complex. Not accounting for listings outside home markets, the current market-capitalization-to-GDP ratio in emerging markets is only 70%, on average, compared with 87% in developed countries.
- The expected convergence of market capitalization-to-GDP ratios does not necessarily mean that emerging market investors are guaranteed higher returns, but the growth potential for these markets is strong.
- Underrepresentation of their equity markets in global portfolios can attract additional investors to the emerging markets asset class in the long-run. (p. 14)
- Emerging markets equities account for 28% of the world equity market capitalization but are allocated only 12% in the MSCI All-Country World Index4. Developed market equities, by contrast represent only 72% of the world's market capitalization but 88% of the same index.
- According to the white paper, emerging markets equities are underrepresented by 57% and developed market equities are over represented by 22% in the benchmark indices. This is likely the case in many portfolios as well, and the authors believe this gap cannot be sustained.
1 Debt-to-GDP ratio, also known as debt-to-gross-domestic-product ratio is the mathematical ratio of a nation's sovereign debt to the monetary value of all the finished goods and services produced within its borders in a specific time period.
2 The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the emerging markets. As of June 2010, the MSCI Emerging Markets Index consisted of the following 21 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.
3 Market capitalization-to-GDP ratio, also known as market-capitalization-to-gross-domestic-product ratio, is the mathematical ratio of the total market capitalization of a nation's equity market to the monetary value of all the finished goods and services produced within its borders in a specific time period.
4 The MSCI All Country World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.
Emerging markets: Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries. Investing in international markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country and sector funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific industry, sector or geographic location. Investing in small- and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than large companies.
Emerging Markets Risk — The risks of foreign investments are typically greater in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be changing rapidly, which can cause instability and greater risk of loss. These countries are also more likely to experience higher levels of inflation, deflation or currency devaluation, which could hurt their economies and securities markets. For these and other reasons, investments in emerging markets are often considered speculative.
You should carefully consider the investment objectives, risks, charges and expenses of the Mirae Asset Discovery Funds before making an investment decision. A prospectus with this and other information about the Funds may be obtained by visiting investments.miraeasset.com or by calling 866-335-3417. Please read the prospectus carefully before investing as it explains the risks associated with investing in international markets.
Mirae Asset Global Investments (USA) LLC is the investment advisor for the Mirae Asset Discovery Funds.
The Mirae Asset Discovery Funds are distributed by Funds Distributor, LLC.
About Mirae Asset Global Investments
Mirae Asset Global Investments is one of the world's largest investment managers in emerging market equities (Investments & Pensions Europe, January 2014). With over 550 employees, including 123 dedicated investment professionals, Mirae Asset offers a breadth of emerging markets expertise. Mirae Asset's offices are located in Australia, Brazil, Canada, China, Colombia, Hong Kong, India, Korea, Taiwan, the U.K., the United States and Vietnam. The firm manages over $56 billion in assets globally through a diversified platform to offer market-leading franchises in traditional equity and fixed income products, ETFs and alternative strategies, such as real estate, private equity and hedge funds. Mirae Asset Global Investments (USA) LLC is focused on providing equity and fixed income investment advisory services to mutual funds, foreign investment trusts and institutions. (www.miraeasset.com)
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