It’ s a roller coaster with emergingmarkets—but often worth the ride

GENERALLY, I’ve seen emerging markets as an opportunity to add longterm pep to my investments, but I dumped a couple of funds last year and didn’t replace them. So I’ve now decided to plug that gap.

Broadly speaking, emerging markets mean fast- growing economies yet to reach their full potential. Crucially, their accountancy and governance may not be up to that of fullydeveloped economies.

Investors can get a rollercoaster ride, with big gains or losses possible. They should be viewed as a very long-term investment — great if you’re in your 20s, but to be treated with extreme scepticism in your 70s. I’m 60, but Mrs H is ageless.

Financial adviser Ben Yearsley, director of Shore Financial Planning, is a fan. He says: ‘You buy emerging markets for higher long- term growth, driven by burgeoning middle- classes and young, dynamic populations.

‘ You can get better longterm growth, at a cheaper price, and, as a whole, countries and individuals with lower levels of debt.’

However, it can be years before they come into vogue. He warns: ‘Nervous investors should avoid.’

Now, here’s where it gets a bit technical. One way of measuring markets is to look at the price/ earnings (PE) ratio.

This looks at how much money companies are expected to make and compares it to the share price. A high number suggests an expensive market. Global shares overall are at 14.9 and the U.S. at 16.6, while emerging markets are at 12 and the UK is at 12.5 — so both look relatively cheap on this particular measure.

The 24 countries in the main MSCI Emerging Markets Index are a mixed bag, including China — the world’s second-largest economy, but with questions on transparency and governance — Russia, India, South Korea, Brazil, Saudi Arabia and Qatar. The forward PE ratio of Russia is 5.6 and India 23 — but in Russia, politics loom large.

Jason Hollands, managing director of Bestinvest, says: ‘If you don’t have any emerging markets exposure, or very little, and are looking to the long-term, invest now and take advantage of relatively depressed valuations stemming from U.S.-China trade war worries.

‘If the U.S. and China can reach an agreement, I would expect assets to rally hard.’ He says U.S. central bank policies, which have put the brakes on the dollar, should help emerging markets.

China also has increased fiscal and monetary stimulus, which should start feeding through to growth in the second half of the year.

Overall, he favours funds with strong exposure to India, because it is ‘much less exposed to trade and is more of a domestic growth story’. Its gross domestic product — a measure of the size of the economy — is expected to grow by 7.2 pc this year.

He picks JPMorgan Emerging Markets Investment Trust, which has a 21.2 pc weighting to India (compared to 9.1 pc in the MSCI index). This is also favoured by Ben Yearsley. It has given an average annual return of 12.14 pc over the past five years, according to analysts Morningstar, with a total return of 29 pc in 2017, but a loss of 7.5 pc in 2015.

Both advisers also pick Fidelity Emerging Markets Fund W — an open-ended investment company, which predominantly invests in large stocks and has given an average annual return of 8.99 pc over the past five years.

Ryan Hughes, head of active portfolios at AJ Bell, says: ‘The long-term prospects of emerging markets continue to look very attractive, as countries such as China, India and Brazil continue to evolve, income levels continue to be driven up and these economies move from being exportled to domestically driven.

‘For pension investors, who will be taking a long-term view of ten years-plus, exposure to emerging markets makes real sense.’

He, too, plumps for Fidelity, pointing out that it will not blindly follow the index.

For example, it holds no Tencent (a Chinese technology company), which is the biggest element of the MSCI Emerging Markets Index.

Laith Khalaf, a senior analyst at Hargreaves Lansdown, says: ‘Clearly, China makes up a large chunk of emerging markets, and the recent trade war with the U.S. has taken its toll.

‘If you’re worried about the effect of Trump tweets on your investment, consider a regular saving plan that drip- feeds money into the market.

‘For most investors, a broad emerging markets fund is probably preferable to one focused on an individual country, as this spreads risk and allows an active manager to pick the best companies from a wide selection.’

So he comes to JPMorgan Emerging Markets, but as an open- ended investment company rather than the investment trust, and Mobius Investment Trust. This is headed by Mark Mobius, a man with an illustrious track record running Templeton Emerging Markets.

Where does this leave me? I will take a hard look at the Fidelity and JPMorgan funds, but, as a former Templeton investor, the Mobius offering intrigues me.