Dubai: Emerging markets equities are favoured compared to developed market equities going forward amid challenges, maintaining its outperformance, even as the last decade was a paradise for investors, executives at Emirates NBD said on Sunday.
Emerging market equities are expected to accrue 8.3 per cent, the most in terms of returns across asset classes, in the next 10 years based on quantitative models compared to 6 per cent from developed market equities, followed by emerging market dollar-denominated debt.
“The last decade [for markets] was a wide and flat highway without speed limits but now the highway is ending,” Maurice Gravier, chief investment officer at Emirates NBD, told journalists. In the last decade, developed equities returned 7.5 per cent, faring better than emerging market equities, which accrued 10.7 per cent returns to investors. However, it might be a bumpy road for investors even as the year has started with markets overshooting fundamentals.
“We think volatility is here to stay due to fundamental reasons such as debt, growth and political and technical reasons,” said Gravier, adding there will be lower expected returns with risks.
“We have a preference for Asia over Latin America and EMEA. The reason being because the world’s highest percentage of millennials are in Asia, it has very high growth and it is adopting technology faster than other economies,” Anita Gupta, head of equities at Emirates NBD, said.
“We say that don’t worry about the trade tariffs as they would continue and look at its own population for consumption and growth. For us India has a special place because it has a large millennial population and it has economic growth and it’s an economy that is domestically focussed,” she said.
About 34 per cent of India’s population are millennials, which is expected to boost consumption from consumer durables to cars. The quantum of millennials compares with 31 per cent in China and 33 per cent in Brazil. India’s benchmark Sensex index has gained 8.1 per cent in the last one year, compared to 14.3 per cent fall in the Shanghai Composite index.
Emirates NBD said they favour corporate credit and emerging market debt ove developed market soveriegn bonds, while GCC bonds offers value across select sovereigns and credit.
“There was a time when you could buy anything and diversification was not a matter and ideally you could even leverage. Now, it is exactly the opposite. It’s all about capital preservation and minimalise the use of leverage because it can make you a forced seller,” Gravier said.