London: FTSE 100 companies with substantial exposure to emerging markets are now looking attractive to UK investors seeking protection from the weak domestic economy.

Large companies with a high percentage of revenues from emerging markets, such as Rolls-Royce and Unilever, also offer a relatively defensive way to tap into the high growth potential of developing economies, analysts said, following the stellar performance of emerging stock markets in the past year.

Amid forecasts of a fragile UK economic recovery and continuing sterling weakness, analysts and investment managers have been highlighting the appeal of UK companies with overseas exposure.

While two-thirds of the revenues of listed UK companies come from abroad, a quarter of UK blue chips have revenues of more than 30 per cent from emerging markets, according to research by Morgan Stanley, the investment bank.

Overall, 22 per cent of UK plc's revenues come from developing economies, the bank said, an exposure that has grown significantly in recent years.

Graham Secker, a strategist with Morgan Stanley, particularly favours such stocks for UK investors because of the "superior and structural growth prospects of emerging economies".

He adds that while these shares have been trading on higher average price-earnings multiples than UK-focused companies, this is more than offset by higher earnings growth shown by lower so-called "PEG" ratios.

Ideal investment

FTSE 100 shares with high emerging markets exposure could be "ideal investments for private investors", he said, with many offering good dividends as well as being easy to buy and sell.

Adrian Lowcock, senior investment adviser at Bestinvest, adds that UK shares of this type could also appeal to those loath to put more money directly into emerging market funds at current levels.

"Emerging markets produced more than double the returns of the UK last year," he said.

"While the long-term outlook remains [robust], there is an increasing likelihood of a correction, possibly of about 20 per cent, so in the shorter term investors need to look at other ways of getting exposure.

"This could be a sensible way to reach into these riskier markets," Mike Lenhoff, chief strategist at Brewin Dolphin, the investment manager, said. "In a way, you're getting your cake and eating it."

— Financial Times