The Sense and Sensibility of Global Investors
The world’s financial markets are like a spider’s web; inter-linked and highly connected, strong and flexible, but sometimes fragile, too. The global financial markets have gone through rapid change in the last ten years. Large, emerging economies such as China and India have increased their contribution to global GDP and become true global powers1, causing individuals’ perceptions of the global economy to shift, as well. Perception has the tendency to impact market reality, which is why I was intrigued to see the results of our 2012 Global Investor Sentiment Survey.
The survey (GISS), which polled more than 20,000 participants in 19 countries, revealed that, though emerging economies like China, India, South Korea and Brazil are currently experiencing slower economic growth, individuals believe the rise of emerging markets is here to stay. In fact, about 50% of all participants expect emerging markets to deliver the strongest returns in the next five years, whether in stocks or fixed income.2
When asked about their outlook for their respective local economies over the next few years, responses from the global group were mixed. That’s not really a surprise. People in India and Brazil remain overwhelmingly optimistic about the future for their economies. Of those surveyed, 71% in India and 64% in Brazil responded that they feel the outlook is bright.2
I am, of course, encouraged by numbers like these, but I’m not surprised given the context of the emerging markets growth story as I see it. Since 1986, when the International Finance Corporation paved the way to promote capital market development in less-developed countries, many emerging countries have progressed from low-cost manufacturing centers to more diverse, growth-driven economies with a strong consumer base. My investment team and I believe that domestic demand will play a key role for this growth story to continue in a positive, long-term direction.
In terms of the frontier markets, our survey found that the majority of investors were less confident about market prospects over the next five years. I believe the survey responses for this question highlight the need for investors to broaden their knowledge about this newer investment asset class. Remember, today’s emerging markets were yesterday’s frontier markets. As frontier economies grow faster and larger, their capital markets can be expected to move from small and illiquid to large and liquid.
Many frontier countries are leading producers of oil, gas and precious metals, and as such, have real potential to benefit from high global demand for these resources. Additionally, as frontier market economies expand, if investments in infrastructure increase as I believe they will, I see potential for valuable opportunities in the construction, transportation, banking and finance industries.
I’m hopeful the global optimism about emerging and frontier markets revealed in our survey proves strong enough to withstand the inevitable short-term movements inherent not just to these markets, but markets worldwide. While investor panic can create opportunities for long-term investors such as myself, I would like to see participants in greater numbers report that same long-term optimism—within reason—even in the face of short-term bumps. And I would of course remind my readers that they may find it’s easier to be optimistic when you feel confident you’ve made a value investment based on bottom-up research and a long-term view.
Want to see the rest of what our survey respondents had to say? 2012 Franklin Templeton Global Investor Sentiment Survey.
1 IMF, World Economic Outlook, January 24, 2012
2 The 2012 Franklin Templeton Global Investor Sentiment Survey