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10 reasons to remain cautious on emerging markets

Nutmeg's chief investment officer, Shaun Port, explains why his investment strategy for Nutmeg's customer portfolios' remains cautious on emerging markets and oriented towards developed market stocks. "The decision in the US to reduce its bond-buying program, coupled with slow Chinese growth, has caused a lot of uncertainty in emerging markets in recent months. With the valuations of emerging market stocks falling, some investors actually see it as a good time to invest in them, but our view remains that the inherent risks far outweigh any small pockets of good value that may exist. We decided to sell our emerging markets investments in June last year and our customers’ portfolios are more oriented towards developed market equities. In 10 charts, here’s why we think it’s prudent to remain wary of emerging markets as a whole right now…"

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10 reasons to remain cautious on emerging markets

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  1. 10 reasons for staying cautious on emerging markets

  2. “The decision in the US to reduce its bond-buying program, coupled with slow Chinese growth, has caused a lot of uncertainty in emerging markets in recent months. With the valuations of emerging market stocks falling, some investors actually see it as a good time to invest in them, but our view remains that the inherent risks far outweigh any small pockets of good value that may exist. At Nutmeg, we decided to sell our emerging markets investments in June last year and our customers’ portfolios are more oriented towards developed market equities. In 10 charts, here’s why we think it’s prudent to be wary of emerging markets as a whole right now…” Shaun Port, Chief Investment Officer, Nutmeg February 2014

  3. 1. Higher growth does not mean higher equity returns

  4. 2. Emerging markets enjoyed big tailwinds in the five years before the financial crisis – it’s unlikely to happen again

  5. 3. Growth in China, a big driver of emerging markets, is likely to be lower this decade than the previous 10 years

  6. 4. Growth across the range of emerging market countries is now looking weak

  7. 5. The outlook for commodity markets is poor

  8. 6. Restored competitiveness in developed markets is now increasing competition and therefore damaging emerging markets

  9. 7. Structural issues have not been resolved in many emerging markets - exchange rates versus the US dollar are declining

  10. 8. Emerging markets are cheap compared to 2003-2007 but not compared to the past 20 years

  11. 9. One emerging market equity market is not like another

  12. 10. Investors are only now starting to review emerging market allocations, so a further sell-off may be coming

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