Are Emerging Markets the Next Developed Markets ?

The opinions expressed are those of the BlackRock Investment Instititute as of August 2011, and may change as subsequent conditions vary. } The emerging markets (EMs) have provided major investment opportunities over the last decade—whether in the equity, fixed income or currency spaces. } The global growth landscape and investment opportunity set have changed significantly in recent years, but allocating to emerging markets remains, in our view, a core investment strategy. } As emerging market economies have grown and converged with their more developed counterparts, the long-time—and much trumpeted—EM diversification benefit for investors has, in our view, somewhat abated. We believe that diversification in itself no longer provides an adequate justification for investing in emerging markets. } At the same time, while a macro focus might once have been sufficient for crafting an effective EM investment strategy, investors must now balance both macro and micro considerations when approaching these markets. In this regard, emerging markets have come to more closely resemble their developed market (DM) counterparts—and accordingly, investors must drill down to the sector, company and security levels to achieve their investment goals. } The EM story encompasses much more than China—but that country's importance to the emerging markets and the broader world economy is undeniable and considerable. We are concerned about China's financial imbalances, but believe that there will be a slowdown in the growth rate for the country rather than a retreat or crash, and that opportunities continue to abound for investors.