Today's five notable reads:
Emerging market equities have sharply underperformed over the past decade, with returns just a third of those of the wider Global sector.
The outlook for China is acutely important for emerging market universe, not simply because Chinese stocks are a major part of the index, but also because China is a substantial consumer of the commodities produced in other emerging economies, while Chinese tourism boosts economic demand in South East Asia.
While the market is well aware of the negatives surrounding the investment case for Chinese equities right now, the opportunity may come from the fact that policymakers in that country are now announcing fiscal stimulus measures in order to boost growth, and this will boost both the Chinese stock market and emerging market economies as a whole.
Comment: Allocation to emerging markets provides both diversification and strong long-term growth potential. However, China represents over a third of the MSCI Emerging Markets Index. Which is big given that 24 countries comprise it. The China A-shares market has been around 35% more volatile than the S&P 500 and has produced half the annualised returns, over the past 10 years. With the heightened political and regulatory risks China poses, in addition the fact that Chinese markets are driven more by retail speculation as opposed to fundamentals, some investors (understandably) shy away from emerging markets allocation altogether. Though there are ways to invest passively in emerging markets without such high exposure to China (e.g. through a number of EM ex-China ETFs). Removing China from the index shifts overall exposure away from Asia and towards Latin America and Eastern Europe so ask yourself if that's worth it. A passive EM-ex China fund coupled with an active China equity fund seems a good alternative.
World-wide, only about 1% to 2% of the estimated $80 trillion held by individual investors is allocated to alternative investments.
But U.S. public pension plans—for decades, private equity’s main source of capital—face their own funding challenges. With markets falling this year, some pensions have slowed their investments in illiquid private funds for fear they will end up overallocated to such investments, making it tougher for private-equity managers to raise capital. This increases the urgency for buyout firms to raise money from ordinary investors.
There has been an explosion of mutual fund-like vehicles, registered under the 1940 Investment Companies Act, that allow wealthy investors to access private equity.
Fund managers and their advisers don’t expect retail demand to dry up anytime soon, particularly as more investors reject a traditional 60-40 allocation between stocks and bonds.
Comment: Ironically, this comes at a time when the majority of Brits are really feeling the burden of the cost of living crisis.
Underneath the gloss of that fantasy-land exterior, Japan as a whole is not exactly thriving.
France, Austria, South Africa and more than 50 other countries are accelerating efforts to control the digital information produced by their citizens, government agencies and corporations.
The goal is to gain “digital sovereignty.”