Emerging markets industry sinks into post-boom soul searching
After the dotcom bubble and the global credit crunch, it's the turn of the emerging markets industry to sink into post-boom soul searching. The near mania that once flabbergasted even emerging market specialists is gone. Now many of the firms that grew to serve investors in the likes of China, Brazil or South Africa are slashing their businesses and jobs, with more cuts to come.
If proof were needed that global investors have gone off developing economies, it came in Tuesday's announcement by Barclays that it is pulling out of Africa after more than a century.
The British bank's African subsidiary insisted the decision to withdraw under a makeover of the London-based parent did not relate to economic sentiment on the continent.
But sentiment among investors in emerging markets generally has been souring for some time; in dollar terms, emerging equities underperformed their developed peers by around 50 percent in the five years from the end of 2010.
Compare that with the mood just before the market peaked half a dozen years ago.
More adventurous investors had long poured into emerging markets (EM) - especially countries exporting then booming commodities - seeking better returns than in developed economies where interest rates were near rock-bottom. But to the astonishment of market professionals, even some pension fund managers - the traditionally ultra-conservative guardians of people's retirement incomes - wanted to join them.
Devan Kaloo, head of emerging equities at Aberdeen Asset Management, recalls a conversation he had with a European pension fund in 2010: it wanted to put no less than 80 percent of its assets into a sector that a few years earlier had been considered too risky for mainstream investors. "I am an EM guy and I should have been jumping up and down and saying 'yes absolutely' but even I was thinking: ' seriously'?" he said. Kaloo advised against such a move, and the conversation with his fund at least went no further. "I just hope they didn't do it," he added.
Kaloo runs one of the sector's most successful funds; it delivered average annual returns of almost 20 percent in the decade after its 2003 launch, far outpacing the underlying emerging index. But some time after the 2010 conversation, Kaloo "soft-closed" his fund - not marketing it and charging new investors extra fees upon entry.
"EM became so much in vogue that we had investors coming to us who perhaps didn't understand the asset class; they looked at our track record and extrapolated that forward. We wanted to rebalance the book and to better cherry-pick clients," he said.
Little did they know but emerging equities' boom decade was drawing to a close. Having risen more than 200 percent from 2001, the main index run by MSCI fell 35 percent in the subsequent five years.
Kaloo's fund has not been spared as investors fled the problems of emerging markets - such as diving oil prices for energy producers from Nigeria to Russia or political infighting in the likes of South Africa - and returned to developed markets in the hope of reviving returns.
Its assets under management ( AUM) are down to $5.1 billion from $16 billion in 2013. Aberdeen Asset Management's overall AUM fell by $30 billion last year, mainly due to its EM-heavy profile. Across the industry, $26 billion fled emerging equity funds last year, according to Boston-based EPFR Global, a sizeable chunk of the net $153 billion inflows received between 1996 when data tracking began and now.
Russian President Vladimir Putin delivers a speech during a congress of the Chamber of Commerce and Industry.