Emerging market equities and region-related ETFs have garnered increased attention from advisors and investors as more look to international opportunities in an extended bull market environment.
“While emerging markets do present a different set of investment risks compared with developed markets, they also offer growth potential that established markets simply can’t match,” Edward Kerschner, Chief Portfolio Strategist at Columbia Threadneedle Investments, said in a note.
Kerschner pointed to three major factors that may continue to contribute to strength in the emerging markets, including their contribution to the global economy, the untapped growth potential of developing economies and a rising middle-income class.
Emerging markets account for 40% of the global economy, doubling in the past 25 years. The emerging markets as a whole are now the largest economy in the world, overshadowing the U.S., Japan and all of Europe. Looking ahead, emerging market economies are expected to expand at a faster clip than developed markets every year through 2021, according to the International Monetary Fund.
The rapidly expanding emerging markets are expected to be supported by population growth and productivity growth. There is a rapid population growth when compared to developed markets. Meanwhile, producing more output per worker in a developing economy is much simpler relative to developed economies where ongoing investment in the latest technologies are required.