Investors' portfolio fail to keep pace with emerging markets

UK investors could be missing out on some of the world's strongest economic growth because the conventions on asset allocation have failed to keep pace with world changes, according to Fidelity International.

While anecdotal evidence suggests that many investors are inclined to allocate less than 5% of their portfolio to emerging markets - traditionally seen as a highly volatile area of investment - these countries have nearly doubled their share of global GDP to 30% in less than two decades**.

China has climbed its way up the world league table of economic growth and is forecast by the International Monetary Fund (IMF) to be the third most important country in terms of GDP by the end of the year, behind Japan and the US.

Seven of the world's 20 largest economies are now to be found in emerging markets, with Russia and Brazil also both in the top ten. Yet even the MSCI AC World Index, one of the most popular benchmarks for international equity portfolios, has only a 12% exposure to emerging markets***.

Peter Hicks, Executive Director UK Retail, at Fidelity International says advisers and investors may want to consider revising their asset allocation models in light of the growing economic significance of developing nations. "Now that China's economy has overtaken that of the UK, Germany and France, it is difficult to ignore the emerging markets story. But the changing economic realities make it worth rethinking traditional level of exposure investors have to these markets.

"Obviously there are risks with investments in emerging markets - corporate governance standards are in some cases lower than in the West and their equity markets can be as volatile as British banking shares - but over the longer term the performance of stock markets tends to be correlated with economic performance. Isn't it time for investors to raise their exposure to emerging markets from just 2.3%? Matching the GDP figure of 30% may be too much of a leap but for more adventurous investors, a weighting of 10-20% might be a more realistic reflection of these economies' stature."