Creative hub: Bloomberg have praised South Korea's 'inventive economy' Photo: Getty  It is hard to reconcile the problems faced by Egypt, struggling with perceptions of terrorism and a tourism collapse, with those of South Korea, which was recently judged by Bloomberg as the world’s most inventive economy[2].  Emerging markets face such varied challenges and have such mixed economic circumstances that it should not be a surprise when they do not perform in the same manner. “We’ve long felt the term ‘emerging markets’ is no longer appropriate in today’s investment environment,” says Justin Oliver, deputy chief investment officer at Canaccord Genuity Wealth Management.  Emerging markets also diverge wildly when it comes to valuations. At the end of last year, the MSCI Emerging Markets Index hovered near record lows[3]. This could lead to the conclusion that emerging markets as a whole are cheap, and now is a good time to buy.  Similarly, research by JP Morgan suggested the index traded on a cyclically adjusted price earnings multiple of 12.8pc last September. But these observations obscure huge variation. South Africa, for example, traded on 20 times earnings, and Russia on just 4.7.  How to spot a good investment  “If you look at emerging market valuations, they are being depressed by certain countries where there are structural problems,” Mr Oliver says. “Similarly there are emerging economies which are fundamentally in a stronger position and where valuations are looking quite expensive.”  When it comes to trying to pick winning investments from the emerging market beauty parade, Canaccord Genuity Wealth Management argues that Latin America appears to be the most structurally challenged emerging market at present, with many economists pessimistic about growth rates for the coming year.  Two of its largest economies, Brazil and Argentina, face particular challenges. With Brazil’s debt cut to junk status last September, and continuing deterioration in the public finances, it is not an attractive prospect.  The Argentine stock market rose 45pc in the first ten months of 2015, only to come crashing down after the election of Mauricio Macri as president in November.[5]  Contrasting their prospects with that of India, for example, highlights the difference between the markets that are labelled “emerging”. Mr Oliver says: “The growth prospects for India appear among the best in the world, although arguably this is more than priced into financial markets.  “The demographic profile of India is extremely favourable, with significant scope to deliver productivity gains should Prime Minister Narendra Modi deliver a more supportive and less bureaucratic business environment.”  China’s valuations also look much more attractive after the recent bursting of the stock market bubble. While there are issues to be resolved and it is not yet clear whether policymakers’ actions to stabilise the economy are having the desired effect, Canaccord Genuity Wealth Management will be reviewing its exposure to Chinese stocks, which may prove judicious in 2016.  The key is to grasp the differences between these economies and get specific in investment styles. “The devil will be in the detail,” Mr Oliver says. “Increasingly during 2016 it will be important to differentiate, rather than having a broad-brush emerging market exposure.”  For more information on wealth management, visit canaccordgenuity.com  You may also like to read>>  Divergence: the market investment buzzword for 2016  How will oil stocks perform in 2016?  Beware: how will dividends perform this year?  Investment involves risk and the value of capital and the income derived from it may go up as well as down. Past performance is no guide to future performance. Unless otherwise stated, the views expressed here are those of Canaccord Genuity Wealth Management. Nothing in this article should be regarded as advice, it has no regard for the requirements of any particular person.
As Bloomberg praise the likes of South Korea's economy, it seems you can reap the financial benefits by investing in emerging markets early on