Emerging markets (EM) have experienced dramatic growth and transformation over the last three decades. The Emerging Market investment universe represented a mere 1% of the global equity market in the late 1980s.
Fast forward to 2020 and the MSCI Emerging Markets Index now represents c11% of the MSCI All Country World index (ACWI).
Exhibit 1: Emerging Markets Relative Performance vs Global Developed Markets (US$)
While Emerging markets now make up a sizeable 11% of the global equity market, they account for around 50% of global economic activity (GDP) and contribute 75% of global economic growth. Looking ahead to 2040, it is estimated that emerging economies will have an output that is more than double that of the developed world.
We believe these growth metrics highlight the growing role that emerging-market allocations will likely play in global and Australian investment portfolios over future years.
We recently increased our recommended allocation within our balanced portfolio to 5% EM equities, this represents c15% of our global equity allocation.
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John is a leading investment strategist with 20 years experience.