Just as institutional investors are viewing emerging markets as a mainstream, must-have part of an investment portfolio, the chairman and CEO of the world's largest money manager thinks the term will soon cease to be relevant.
“We talk about emerging markets as if they are one compatible, cohesive market — but within emerging markets we have some very good examples of well-run countries, and we have some real garbage,” said Laurence D. Fink, chairman and CEO of BlackRock Inc., New York, which has $4.3 trillion under management.
“When China was growing at 10% to 12% a year, it hid the garbage,” said Mr. Fink, speaking March 7 at the National Association of Pension Funds investment conference in Edinburgh. “I do believe the future of investing in emerging markets is going to change and very rapidly. ... I do believe we will see much more granularity in the investment of the developing world and we will stop talking about emerging markets as an asset class.” He cited the way investors take a granular approach to U.K. investment, focusing separately from the rest of Europe, as an example.
Mr. Fink's comments were supported by delegates at the conference. One money management executive, who asked not to be named, said he agreed with Mr. Fink's view that emerging markets countries should and probably will be considered in smaller groupings or even individually, “which makes sense if you look at what happened last year and in the first few weeks of this year.”
The executive was referring to the performance of the MSCI Emerging Markets index, which returned -2.4% in U.S. dollar terms for 2013, compared with an 18.6% gain the year before. That compared with the MSCI World index, which gained 27.4% in 2013, up from 16.5% in 2012. That trend has continued into this year, with returns for the emerging markets index in the year through March 11 at -4.52% in dollar terms.
Add to that political concerns regarding Russia and Ukraine, plus continued political unrest in Turkey and Thailand, and you have a cocktail that is sure to leave some investors nervous about broad emerging markets exposure.