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Why EM

WHY THE FUTURE OF INVESTING BELONGS TO EMERGING MARKETS

Compelling Reasons to Include Emerging Markets Exposure in Canadian Portfolios:


1. BETTER LONG-TERM PERFORMANCE

 

 

 

6. IMPROVING CREDIT QUALITY
Emerging markets have significantly outperformed developed markets over the 16-year period ending December 31, 2014. During this period, the MSCI Emerging Markets Index produced a total return of 188%, as compared to only 59% for the broader MSCI World Index.       Emerging nations have significantly improved their credit and market debt ratings, translating into ratings upgrades on their bonds. Over 60% of emerging market debt is currently rated investment grade.

     

2. REDUCED PORTFOLIO VOLATILITY

 

 

 

7. LARGER INVESTABLE UNIVERSE

Canadian investors can lower overall portfolio volatility by adding low-correlation emerging markets exposure.       The market capitalization of emerging markets has expanded exponentially since 2000. By 2030, it is forecasted to reach US$123 trillion, up from $2 trillion in 2000.

     

3. WORLD’S STRONGEST ECONOMIC GROWTH

 

 

 

8. LOWER DEBT LEVELS

The global economy is now driven by the emerging markets as they account for 73% of global growth, and are forecast to outpace developed markets for decades.       Emerging martket nations debt-to-GDP ratios have fallen dramatically since 2000. They currently average only 40%, as compared to 100% in developed markets.

     

4. BENEFICIAL DEMOGRAPHICS AND GROWING MIDDLE-CLASS CONSUMPTION

 

 

 

9. HIGHER FOREIGN RESERVES

A younger demographic structure, with a rapidly growing middle class, is fueling domestic consumption and infrastructure development, contributing to accelerating economic growth.       Emerging markets hold 65% of total global foreign reserves, providing greater ability to stabilize exchange rates, reduce external market dependency, and moderate currency shocks.

     

5. STRONGER CORPORATE FUNDAMENTALS

 

 

 

10. POLICY FLEXIBILITY

Emerging market companies are stronger and more globally competitive than they once were, with better quality balance sheets and increasing profitability.       Lower debt levels and higher foreign reserves provide emerging market nations with greater flexibility to implement policies to better target inflation, interest rates, and currency initiatives.

 

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