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The Emerging Markets Opportunity (part 1) — Demographics

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March 15, 2021

Over the past few decades, the world economic order has been shifting towards Asia. Unfortunately, many Canadian investors aren’t positioned to take advantage of this opportunity. The Globe and Mail did an analysis of Canadian balanced mutual funds, exchange-traded funds (ETFs), and robo-advisor portfolios and found that the average weighting towards international stocks was 25 percent. Given the MSCI EAFE Index (the benchmark for international equities) is dominated by Europe and the U.K., the emerging markets share in a portfolio is likely to be even smaller. Anecdotally, we hear that retail investors hold at most a 5 percent direct exposure to the emerging market asset class.

While the emerging markets asset class has been overlooked by Canadian investors, we think exposure to the asset class in an investor’s portfolio is likely to enhance diversification benefits and shouldn’t be viewed as a “niche” investment. Specifically, the Asian emerging markets are a rapidly growing area of the world that we believe will only continue to grow in terms of economic importance.

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