Despite trade risks facing emerging markets, State Street Global Advisors sees opportunity for investors particularly in China and India, which are expected to drive much of the projected global GDP growth this year.
Even with U.S. tariffs on Chinese goods, China is projected to contribute more than 34% of the global GDP growth in 2019, 3.3%, according to a midyear Global Market Outlook report from SSGA, published Monday.
India is also expected to be a key contributor to global GDP growth, with 7.3% growth projected this year and 7.5% growth in 2020.
"Risks remain for (emerging markets), not least the threat of rising protectionism from (developed markets) such as the U.S. However, we believe that the growth story in the two largest countries — India and China — continues to offer opportunities for investors in both the equity and debt space. Within an EM allocation, therefore, it is worth considering how best to gain exposure to these larger economies," the report said.
Attractive active exposure to Chinese companies include firms "geared toward secular trends in the domestic market that are under-represented in the index," the report added. In emerging market debt, "Chinese bonds in major EM and global indices should bring easier access for global investors keen to benefit from higher-yielding government bonds that are more highly rated than the average EM sovereign."
The findings come as money managers urged investors late last year to remain in their equity and debt emerging markets strategies, despite disappointing returns in 2018, Pensions & Investments reported at the time. Managers noted that emerging markets had corrected, presenting attractive company valuations, particularly when compared to U.S. valuations.
SSGA also discussed equity volatility and climate change in its midyear report.
Equity market growth should continue, with spikes in volatility, and SSGA remains overweight in equities but cautioned investors to remain watchful in light of geopolitical and growth risks facing the global economy.
Climate-related investment risks also moved up investors' agendas in 2019, with considerations on the impact of climate change on financial markets, business models and long-term asset values across asset classes and sectors.
The full report is available from SSGA's website.
