EMERGING MARKETS

An investment is a good one only if the price is right and there is potential for returns. Despite the unexciting economic outlook, emerging markets could offer investors good returns in the long term, Hywel George, the director of investments at Old Mutual Investment Group, told delegates at the Financial Planning Institute convention.

On a five- to 10-year view, the most obvious place for adding returns is emerging markets. These markets have been out of favour for five to eight years and have finally started to turn, George says.

He bases his assessment on a number of factors:

On land mass and population size, emerging markets far outnumber developed markets. Asia alone has 17 million square metres of land versus Europe’s four million square metres. And of the world’s seven billion people, one billion are in Africa and four billion in Asia. The sheer amounts of resources and people create opportunities.

Consumerism was behind a major bull market in the United States, where consumers bought cars, appliances, and other goods. This boom happened in the US after World War II. A similar boom looks as if it is starting in emerging markets. Many emerging markets are entering this phase, and this should drive growth and provide an opportunity for investors to make good returns.

In 2010, emerging markets accounted for a mere 12 percent of world consumption. This is forecast to rise to 30 percent by 2025.

A good investment case, but is the price right?

Generally, emerging markets are not expensive and they are certainly unloved, which is the time to get involved in an asset class, George says.

Looking at their share valuations (share prices against company profits) compared to developed markets (and South Africa), many emerging markets are not expensive. The low valuations point to good returns, George says.