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Komfie Manalo, Opalesque Asia: The emerging markets, which are expected to reach 40% of the world’s gross domestic product (GDP), offers better option for diversification purposes in the current market conditions, said Lyxor Asset Management’s Weekly Brief.
Philippe Ferreira, Lyxor AM’s head of research, managed account platform, said that emerging markets (EM) would soon represent 40% of world GDP. However, they barely represent 10% of global equity indices. Consequently, benchmarked portfolios structurally underweight EM equities compared to the size of EM in the global economy. There are some reasons for this, such as the higher volatility of EM equities, lower percentage of free float than in developed markets, higher transaction costs etc. Nevertheless, this gap appears largely unwarranted today.
He continued, "The key question is therefore how much to invest in emerging markets. As stated in recent academic research, "a market capitalization-based benchmark can be viewed as the lower bound on the asset allocation to emerging markets"
Two main features of Lyxor’s latest data showed the following:
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