It’s time to invest in emerging markets.
Not only have they begun to price in economic and political risks, but also developed markets, such as the U.S., are becoming overvalued, says Luc de la Durantaye, first vice president of global asset allocation and currency management at CIBC Global Asset Management. He manages the Renaissance Optimal Inflation Opportunities Portfolio.
Still, last year was rocky for Brazil, Russia and India, and current events in Ukraine are stirring global fears. That means clients should be cautious as they tweak their portfolios.
To help, research current risks and discuss them with prospective investors. Also point out that BRIC nations—though they’re often thought of as one unit—aren’t always a homogeneous group, says de la Durantaye.
The main thing they have in common right now is “their equity markets have corrected quite a bit,” he adds.
Brazil’s real has weakened, for instance, and blowback from political conflict in Ukraine has affected the ruble and the region’s stocks.
At the same time, India’s rupee has deflated rapidly over the last twelve to eighteen months due to U.S. tapering news.
So, policymakers in many emerging markets are deciding whether to raise interest rates and implement reforms to boost their economies, notes de la Durantaye.
Nonetheless, clients should be open to investment opportunities. Overweighting U.S. stocks was a good move over the last few years, he says, but clients will need global exposure going forward.