Emerging and developed markets should continue to converge, while frontier markets in Africa should generate the best returns behind only the U.S. over the next three years, according to a survey conducted by money manager Principal Global Investors and research firm CREATE-Research released on Monday.
Of the more than 700 global survey respondents, 56% expect more market structure convergence between the East and West, and 32% expect more convergence in terms of investor approaches.
“I think the most important takeaway again is just the convergence between emerging and developed economies and we have definitely seen that play out after the global financial crisis. Institutional investors, especially outside of the U.S., have been moving to global all-country-type benchmarks. They have been wanting managers to manage across emerging and developed economies jointly and find the best opportunities,” said Barb McKenzie, chief operating officer of Principal Global Investors, in a telephone interview.
Forty-eight percent of survey respondents see emerging markets equities to be an opportunistic play, compared with 30% in 2012, while 51% of respondents find emerging markets debt to be similarly opportunistic, up from 15% in 2012.
Survey respondents also said the two main drivers of asset prices in emerging markets will be slower economic growth (62% of respondents), as well as the Federal Reserve's taper program, cited by 53% of respondents.
When asked which regions would offer the best returns in the next three years, 47% of respondents said the U.S. would be most likely to do so, followed by 45% saying frontier markets in Africa.
“There is absolutely a growing interest in frontier markets, especially Africa,” said Ms. McKenzie.
“People are looking at it as a way to get greater diversification. The African continent — ex-South Africa — is a rapidly developing resource, which we're seeing on the institutional side the creation of sovereign wealth funds around the continent.”
Of the largest emerging markets, 34% said China, and only 15% said Brazil, will offer the best returns over the next three years.
More than 700 executives at pension plans, money managers, sovereign wealth funds, pension plan consultants and fund distributors across 30 countries representing $29.7 trillion in assets were surveyed in January and February,.
The full survey results are available on Principal's website.