Emerging markets - the next frontier
Andy Parsons, Advice team manager at The Share Centre looks at the next level of emerging market countries to present investment opportunities.
"Over the past decade, BRIC countries have been the main focus for investors seeking exposure to emerging markets. There is however, the potential for these to now be considered established ‘developed' emerging markets. As they become part of our everyday lives, investors are looking towards a new frontier of countries offering the investment potential and excitement previously afforded the BRICs.
"As the world becomes more developed, new markets open up and investment opportunities become greater. The BRIC story is by no means over and still offers significant potential, but investors may be looking for new opportunities.
"Whilst countries such as Taiwan, South Korea, South Africa, Mexico, and Turkey may have already crossed the investment radar, there are others that may have never previously been considered. Countries such as Indonesia, Chile, Thailand and Malaysia, make it apparent that the world is becoming a diverse and investable asset.
"It comes as no surprise to investors that South Africa is still predominantly a play on natural resources such as gold and platinum.
"Despite regularly being in the news for tensions with neighbour North Korea, South Korea and Taiwan, both offer investment opportunities. South Korea is home to giant companies such as Samsung Electronics and the Hyundai group, and Taiwan has already undergone considerable industrialisation, which puts both countries ahead in terms of investment opportunity and choice.
"Elsewhere, due to its cultural diversity and because it is seen as the gateway where East meets West, Turkey is unique. Its importance as the key hub for oil and gas transportation from the Middle East cannot be under estimated, including the part it plays in bringing western consumer goods to eastern markets.
"In order for countries to help establish their economic growth, it is vital they are able to attract foreign direct investment and have political stability. For example, whilst Venezuela's vast oil reserves may make it seem like an opportunity, its risk is far too great given its current political situation.
"Investors considering exposure to these new emerging markets must appreciate that these markets will naturally exhibit high degrees of volatility and uncertainty in the short term. However, the potential is there for a long term reward.
"In order to gain exposure to these countries, we would recommend investors seek a global diversified emerging markets fund or a regional specific alternative. Listed below are two funds that we believe offer some degree of exposure to these new and exciting countries."
Aberdeen Emerging Markets fund
"The Aberdeen Emerging Markets fund is ideal for more adventurous investors who want broad emerging market exposure, with access to more than just the BRIC economies, in a well diversified portfolio.
"This fund has no single manager at the helm but is managed on a ‘team' basis by Aberdeen's emerging market specialists. Its managers and analysts are involved with the participants of these markets on a daily basis, and apply a bottom up approach with an emphasis on absolute returns rather than the benchmark.
"In terms of performance, the fund is ranked number one in its sector over five years at 31 January 2011 with a cumulative return of 112.33%, and is also 1st quartile over one & three years with returns of 28.52% and 64.06% respectively." (Source: Financial Express)
Fidelity South East Asia
"As already alluded to, Asia currently provides investors with an abundance of opportunities and this fund looks to offer all of those wrapped up in a region specific style fund.
"The lure of the potential higher returns from the Pacific basin as a region are hard to ignore but it is not for the fainthearted. Poor communication and regulation, lack of corporate governance and even corruption are just some of the difficulties faced by the region.
"The Fidelity South East Asia fund is an ideal way of investing within this region as its managers and analysts are involved with the participants of these markets on a daily basis. Allan Liu manages the fund from Hong Kong and is supported by a number of sector analysts who are also based throughout the South East Asia region.
"The fund provides broad diversification across many of the new and exciting next tier of emerging market countries. Also, in terms of performance, the fund is ranked first quartile over one, three and five years on a cumulative return basis to 31 January 2011, returning 33.99%, 57.62% and 128.88% respectively." (Source: Financial Express)