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Smaller developed, emerging markets to provide robust returns

Rachael Micallef  |  22 Feb 2013Text size  Decrease  Increase  |  

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Rachael Micallef is a journalist with InvestorDaily, a Sterling publication.

 

Investors should look to diverse investment centres such as smaller developed and emerging markets in the hunt for strong returns, according to BlackRock.

BlackRock has said that in current market conditions, investing in smaller developed countries such as Australia will provide better sources of return throughout the year, as opposed to traditional investment markets in the United States, Japan and Europe.

"One of our themes is to run down the weight a bit to the US, Europe and Japan and bring it up to these baskets of smaller developed countries," BlackRock global chief investment strategist Russ Koesterich said.

"Last year, that theme worked out quite well and outperformed the benchmark by about 5 per cent in US-dollar terms. So we would stick with this theme."

Despite the positive outlook on Australian and other smaller developed countries' equity outlooks, BlackRock has said investors should look to diversify their portfolios by investing in emerging markets.

"With Australia now trading at a premium to most developed markets, I am currently recommending maintaining a benchmark weight to the Australian market and encouraging investors to add international investments to their portfolios to avoid home bias," Koesterich said.

Koesterich said while emerging markets continued to be risker than developed countries' stocks and bonds, the differential between those risks is narrowing.

"Right now you can buy emerging market stocks at about a 25 per cent discount to developed market equities," he said.

"Generally, if you buy emerging market stocks at a 20 cent discount on the dollar, that's been a good time to overweight in the asset class.

"It was actually a good year for them in 2012 and we think it will be another good year for them in 2013."