EM funds can offer diversification with high returns | Economic Times

Mumbai: Domestic investors looking to diversify their portfolios to Emerging Markets other than India could consider the funds offered by Edelweiss Mutual and PGIM Mutual, said investment advisors. A weak US dollar, near-zero interest rates in developed markets and underperformance vis-a-vis US markets over the last decade are driving global investors towards emerging market equities. Investors could allocate up to 5% of their portfolio to these funds, said advisors.“A weak dollar coupled with low interest rates globally will drive a lot of money to emerging markets,” said Radhika Gupta, CEO, Edelweiss Mutual Fund. For most domestic investors, the local stock market has been a proxy for emerging market investing. The robust performance of Indian equities gave them little need to diversify into peers. Post Covid-19, this behaviour has seen a change with investors dipping their toes into various asset classes globally either directly or through mutual funds. Many of these international funds invest in companies that bet on growth stories in other markets that are not available in India. 80002055 Fund managers expect the dollar to remain weak with the US government and the Federal Reserve pumping money into the system to cushion its economy from the impact of the pandemic.With valuations rich in developed markets and emerging markets having underperformed them over the last decade, analysts believe they offer an opportunity to earn better risk adjusted returns in the next few years.“The emerging market economies are likely to rebound faster than the developed market,” said Bhavesh Sanghvi, CEO, Emkay Wealth. “An additional incentive for investing is the emerging market currencies have stabilized after a period of depreciation. Against an anticipated depreciation in the dollar a rise in these currencies may support investments.”Sanghvi said as economic activity picks and consumer confidence rises post Covid-19, sectors like consumer discretionary and technology could be big beneficiaries which are major sectoral weights in the MSCI Emerging markets Index could benefit. Emerging markets are home to big companies in healthcare, technology and finance. Alibaba, Samsung and Lukoil Oil Company among others"The share of emerging economies in global GDP has increased significantly from 38% in 1990 to 60% in 2019. Emerging markets account for 25% of the global market capitalization and are home to large companies in the healthcare and technology space," says Srinivas Rao Ravuri, CIO, PGIM Mutual Fund.The sharp run-up in global equities including emerging markets warrants caution.“Negative interest in developed markets will lead money flow to emerging markets and this will continue for a long time. Investors can allocate 5% of their money to such themes and build this in a staggered manner and be way of currency risk,” says Tarun Birani, Founder, TBNG capital Advisors.