Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Emerging markets’ long-term outperformance
Because emerging markets are subject to bouts of considerable volatility it is easy to lose sight of the bigger picture.
Powered by developing economies like China and India the MSCI Emerging Markets index has comfortably outpaced its developed market counterpart MSCI World since its launch at the beginning of 2001.
It has chalked up an annualised net return of 9.3% against 6.6% for the MSCI World. This is unsurprising when you consider China’s 2019 GDP growth rate, prior to the pandemic, of 6.1% was considered a disappointment despite coming in at a level the developed world could only dream of.
While there’s no guarantee these sorts of returns will continue in the future it at least suggests that for patient investors investing in this area can be rewarding.
There are several reasons for emerging markets superior growth on a long-term view. A key factor is that they are playing catch up with the rest of the world, with their economies becoming more industrialised and their middle classes growing which is leading to increased domestic consumption.
Technology is also playing a part, helping emerging markets transition from being centres for the production of low-cost, commoditised goods to higher value items.
These attributes are combined with attractive demographics, with relatively youthful economically active populations, unlike in the West and Japan which are seeing a shrinking working age cohort and having to fund growing numbers in retirement.
This outlook is part of a series being sponsored by Templeton Emerging Markets Investment Trust. For more information on the trust, visit here.