Is EM an investor's saving grace?

With interest rates at record lows, Fidelity International believes investing in emerging markets may be the saving grace for many investors feeling the pinch.

Speaking at the Fidelity Emerging Markets Adviser Forum in Sydney, Fidelity's cross asset class specialist Anthony Doyle said the closer Australia gets to zero rates the closer investors get to lower yields.

"It is no secret the Reserve Bank of Australia has an easing bias.  Seven years ago RBA governor Phillip Lowe said very low rates are nothing to aspire to, and yet here we are," Doyle said.

"Australians, especially those with SMSFs, are turning to global markets on the hunt for yield and going into riskier markers to search for returns.  This is a new trend for Australians."

Fidelity expects emerging markets to generate outsized growth in the "foreseeable future" while the International Monetary Fund expects that Asia will outsize the combined might of all advanced economies by 2023.

While emerging markets have typically underperformed compared to their developed counterparts, Doyle said this is due to three main reasons.

"Indices are heavily skewed towards larger companies, emerging markets are impacted by global trends to a higher degree and regulations in emerging markets can often be harsher or difficult to navigate," he said.

"However, taking a forward-looking approach to allocating capital, active investment managers can gain exposure to those sectors that are likely to benefit from long-term structural developments."

Fidelity said that for investors searching for growth, structural and cyclical forces are combining to highlight the attractiveness of Asia as a destination for investment.

Doyle said that interest rates cuts in both emerging and developed nations are likely to support the global economy into 2020.

"If we are right, then a recovery in global growth combined with a search for higher returns is likely to support risk assets, including Asian equities," Doyle said.

Read more: EMFidelity InternationalAnthony DoyleReserve Bank of AustraliaInternational Monetary FundMarkets Adviser ForumPhillip Lowe
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