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Emerging stock markets not always the best route, says Standard Life

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Standard Life Investments believes that emerging stock markets are not always the best route to gaining access to structural trends in developing economies.

Companies in developed markets, emerging market sovereign and corporate bonds and high yielding market equities can all play a role.

In the latest edition of Global Perspective, the fund manager argues that after decades of globalisation, where we invest is becoming less important than what we invest in.

Increasingly, investors need to understand the complex linkages and relationships between emerging and developed markets. The report highlights, for example, that at the market level, about 20 to 25 per cent of FTSE100 and S&P500 revenue is derived from emerging markets. This makes it possible to achieve a significant exposure to developing economies while investing in familiar names such as Unilever, Nike and Heineken.

Frances Hudson, global thematic strategist, Standard Life Investments, says: “The tremendous opportunities associated with emerging economies are not wholly in the emerging stock markets. For example, to benefit from trends such as the growth in emerging market consumption and increasing brand awareness, investors may do better to hold a mix of developed and emerging market consumerfacing stocks than just buying emerging market shares.

“Income-oriented investors should consider both emerging market corporate bonds and higher yielding Asian equities as another source of sustainable yield. Rather than debating the decoupling between countries and regions, we would recommend looking closely at the evolving business relationships and trading patterns and identifying the beneficiaries on both sides.

“In conclusion, the tremendous opportunities associated with emerging economies are not wholly in the emerging stock markets.”

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