Emerging Markets

Emerging Markets from a Different Perspective

As the populations of emerging economies grow, so may spending and investment in these markets.
The area within the shaded circle includes more than half of the Earth’s population. It is also the smallest possible circle containing more people living inside it than out.
Investors who have at least some exposure to this region, which contains primarily emerging and frontier economies, will be well-positioned to benefit from the world’s main engine of consumer-driven growth potential.

More People Live Inside This Circle Than Outside of It

Source: Danny Quah. “The World’s Tightest Cluster of People”. September 22, 2015

Demographic Trends Favor Emerging Markets

Emerging markets have a greater number of young people entering prime working age.
Larger work forces may position many of these countries for stronger growth potential versus countries with smaller, more stagnant populations.
In addition, the balance of working age people to retired adults in emerging countries is better positioned to support the aging populations of these societies.

Current Population
Age Group

Source: U.N. World Population Prospects 2019.

Emerging Markets Have Outpaced Developed Markets

Global GDP growth is driven largely by developing countries. However, of the ten most rapidly expanding economies, all are emerging markets.

GDP Growth by Country
Forecast 5-Year Average GDP Growth: 2023-2028

Source: FactSet, IMF World Economic Outlook. As of December 31, 2023. Forecasts are inherently limited and should not be relied upon as a guarantee of future results.

The Trajectory to 2028
Expected GDP Rankings (USD trillions)

Source: IMF World Economic Outlook estimates. As of December 31, 2023. Forecasts are inherently limited and should not be relied upon as a guarantee of future results.

The Power of the EM Middle Class

Emerging economies, historically export driven, are expected to continue shifting toward consumption as per capita income rises and their middle class populations swell.
The expanding purchasing power of the emerging markets consumer is a long-term global trend that may become one of the most powerful investment forces of the next several decades.
Most of the consumption growth is expected to come from China and India making investments in those countries especially compelling.

Share of Global Middle Class Consumption
2000–2050

Source: OECD, The Emerging Middle Class in Developing Countries, by Homi Kharas. January 2010. Middle class is defined as households with annual per capita incomes between $3,500 and $35,000 in purchasing power parity terms. This range does not account for points at which a country’s discretionary spending increases internally. Forecasts are inherently limited and should not be relied upon as a guarantee of future results.

In Summary

As the impact of financial, societal, and geopolitical uncertainty continues to shape global markets, the topic of meaningful diversification—the kind that reduces portfolio risk—will become more critical. While investing in one’s home country may feel safer, the data points to the fact that even concentration within one economically prosperous country can make a portfolio more vulnerable than investing across several different economies. Thus, there are the opportunities that exist beyond our borders for growth in markets with characteristics very different than the U.S.

Diversification does not guarantee a profit or protect against a loss in declining markets.

Investments in international securities are subject to certain risks of overseas investing including currency fluctuations and changes in political and economic conditions, which could result in significant market fluctuations.

Investments in small capitalization companies are subject to risks such as erratic earnings patterns, competitive conditions, limited earnings history and a reliance on one or a limited number of products.

Investments in frontier emerging markets and emerging markets are subject to risks such as erratic earnings patterns, economic and political instability, changing exchange controls, limitations on repatriation of foreign capital and changes in local governmental attitudes toward private investment, possibly leading to nationalization or confiscation of investor assets.

Market prices of investments held by the Fund may fall rapidly or unpredictably due to a variety of economic or political factors, market conditions, disasters or public health issues, or in response to events that affect particular industries or companies.

Alpha, often considered the active return on an investment, measures the performance of an investment against a market index used as a benchmark, since the benchmark is often considered to represent the market’s movement as a whole. The excess return of a fund relative to the return of a benchmark index is the fund’s alpha.

The Sharpe ratio is calculated using standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe ratio, the better the portfolio’s historical risk-adjusted performance.

Standard deviation is used as a measure of an investment’s volatility. It calculates the variability of returns by comparing a mutual fund’s return in each period with the average return across all periods. The standard deviation is not available for periods of less than three years.