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Active Retirees : Active Retirees Feb-March 2013
FINANCE Emerging market equities Investments in emerging markets offer access to a fast-growing pool, but also carry significant risk. BEN POWER T he Australian stock market makes up less than three per cent of the world’s equities. Beyond our shores lie huge opportunities, particularly in the less-developed, fast-growing emerging markets of Asia, Russia and South America. “As these nations mature and become increasingly affluent, their spending ability will rise and pave the way for rapid growth in consumer demand for healthcare, consumer goods and financial services,” says Stephen Thornber, fund manager of the Threadneedle Global Equity Income Fund. Emerging markets equities have a reputation for being high risk and high reward; they provide higher returns, but tend to be more volatile than stocks in developed countries. Over the past five years particularly, emerging markets investors have been on a rollercoaster ride. They slumped hard during the GFC, falling 53 per cent in 2008; they then rallied 79 per cent in 2009, but have underperformed developed economy stock markets since, with another tough year in 2011 and only modest gains in 2012. As these nations mature, their spending ability will rise. “The past twelve months have proved a brutal affair for emerging markets investors and probably tested the resolve of even the most ardent emerging markets aficionado,” Steven Sweeney, senior investment analyst at Lonsec, said in a recent report. That volatility is the major downside of emerging markets. Sweeney says that emerging markets are susceptible to global ‘risk appetite’. Basically, when investors are feeling buoyant and confident, they’re more likely to take a risk on emerging markets; when they’re cautious they take money out of the likes of China and India, and bring it back home where they feel safer. Rewards The reward for that volatility, however, is higher returns. The past » Active RetireesTM | 37
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