With the US economy settled in a fitful, sluggish recovery, it seems increasingly likely its natural growth rate is lower than in the past.
Maybe the twin drags of financial sector deleveraging and an ageing population will make US investors do what years of exhorting by their financial advisers failed to achieve: reconsider the domestic bias of their portfolios and look to the developing world.
It is worth pausing, however, to ask: are we investing the right way in overseas markets? The answer may be no.
“Essentially nobody is getting what they think they are investing in,” says Rob Lovelace, manager of the $24bn New World fund at American Funds, and he is right. Traditional emerging markets investing, based on separating companies by country of origin, does not necessarily get at the reasons investors are excited about the developing world growth story.
Rising living standards in China and elsewhere are leading to strong demand for luxury goods and consumer brands, many of which are developed by western companies. Emerging market stock markets, meanwhile, skew heavily to older domestic companies, often heavily regulated, many state owned.
Investors who bought the MSCI China index at inception in 1992 are sitting on a gut-wrenching 48 per cent loss, even though the country’s GDP is up 1,780 per cent. China is an extreme case, skewed by technical factors. But among the 10 largest countries in the MSCI Emerging Markets index, the average correlation of stock market performance to GDP growth is only 0.73, where 1.00 would be perfect correlation, according to a BlackRock.
“If you really want to get at the emerging markets opportunity, it is a strange limitation to only invest in companies that are listed in these countries,” Mr Lovelace says. “I want to be able to invest in the Nestlés of the world. About 40 per cent of Nestlé’s revenue comes from emerging markets.”
Developed market stock markets also suffer mislabelling. An estimated 47 per cent of revenues at S&P 500 companies are generated outside the US. Investors betting on the eurozone recovery are finding a poor proxy in European stock markets, whose companies generate a similar proportion of sales elsewhere.
The solution appears to be a new class of indices that aim to reflect their members’ economic exposure to different regions and countries, rather than where a company has listed its shares or screwed a brass plaque to a door.
MSCI, Russell and Stoxx have all developed regional or country-by-country indices whose members get large proportions of their revenue from a geography. Morningstar is considering launching a similar product. Ultimately there could be exchange traded funds tracking these indices, while active EM managers could use them as benchmarks.
As well as a “does what it says on the tin” justification, investing by economic exposure could open EMs to investors with caps on investing outside their home market, depending on how these new index families are sliced and diced.
Above all, economic exposure indices could damp the volatility of emerging markets investing. EM stock markets tend to get bid up by foreigners during times of euphoria, and swing wildly to the downside when foreign capital threatens to flee, especially if countries have a history of imposing capital controls.
The threat of such volatility appears to be elevated at the moment. EM stock markets are one of the asset classes puffed up on cheap money from western central banks’ quantitative easing programmes.
At the nadir of the EM swoon in February, after the US Federal Reserve began tapering QE, the traditional domestic company-only MSCI Emerging Markets index was down 8.4 per cent from the start of the year. The new economic exposure EM index, which includes multinational companies, was down a more muted 6.6 per cent. MSCI China was down 10.2 per cent in the same period, versus a fall of 5 per cent in MSCI’s Chinese economic exposure index.
As emerging market companies shop around internationally for welcoming stock markets on which to list – as China’s Alibaba has done – and the boundaries between developing and developed markets blur, the attractions of economic exposure investing ought to become more obvious.
There is some distance to go before it can become a reality, however, and the new benchmarks first have to be improved. Index providers are scrabbling to assemble revenue breakdowns from clues scattered across earnings reports and investor relations slideshows.
And for every Nestlé, which gives a revenue figure for its 11 most important countries, there are scores of companies that provide only cursory regional breakdowns, leaving MSCI and others guesstimating the numbers based on relative GDPs.
What is needed is for investors to push for more disclosure from multinational companies. That ought to be in companies’ interests, because it spotlights their EM growth credentials and potentially attracts a new class of shareholder. It is certainly in the interests of investors, who deserve to get something a little closer to what they think they are buying.
新世界基金(New World fund)是美洲基金(American Funds)旗下基金，规模为240亿美元。该基金经理人罗布?洛夫莱斯(Rob Lovelace)表示：“实际上没人知道自己正把钱投到什么地方。”他说得没错。传统的新兴市场投资方式建立在以总部所在国家划分企业的基础上，不一定能抓住投资者对投资于发展中世界增长故事感到激动的原因。
那些1992年从一开始就买入摩根士丹利资本国际(MSCI)中国指数的投资者痛苦地承受着48%的亏损，尽管同期中国的国内生产总值(GDP)增长了17.8倍。中国是一个极端例子，受到一些技术因素的扭曲。不过，根据黑岩(BlackRock)的说法，在MSCI新兴市场指数(MSCI Emerging Markets index)覆盖的10个最大国家中，股市表现与GDP增速的关联度平均只有0.73——1表示完美关联。