Emerging Markets Set To Beat US Stocks: Should You Invest?

Emerging stock markets projected to overtake the US by 2030. That’s according to Goldman Sachs.

Passive investors have looked to US stock market index funds and Global Funds such as the Vanguard FTSE Global All Cap Index for strong reliable returns over the past few decades. Should our focus change as we look to the next decade or two?

Emerging economies like China and India, may hold the strongest growth opportunities. Unfortunately most passive investors will be underweight in these regions.

Disclaimer: This is not financial advice and you are responsible for your own investment decisions. When investing capital is at risk. This article may contain affiliate links.

What Is The FTSE Global All Cap Index?

One popular option for global diversification is the Vanguard FTSE Global All Cap Index, but as this index is currently heavily weighted towards the US. Some investors may wonder if it will ever shift its investments to other countries if they become stronger economically.

The FTSE Global All Cap Index is designed to represent the global equity market. That’s because it tracks the performance of large, mid, and small-cap companies in developed and emerging markets worldwide.

This index includes over 7,150 stocks and covers 98% of the worlds investable market capitalization. It also has a total fund size circa $2.29bn. The index is weighted based on the market capitalization of each company. Which means that larger companies make up a greater proportion of the index than smaller ones.

Currently, the FTSE Global All Cap Index is heavily weighted towards the US, with around 60% of its market capitalization coming from US companies. This is largely due to the fact that the US stock market is the largest and most developed in the world. With many of the world’s largest companies such as Apple, Microsoft and Amazon based in the US.

Emerging Markets vs FTSE Global All Cap For The Next Decade

Emerging market economies, such as China, India, and Brazil, are often considered riskier investments compared to developed countries. While it’s true that emerging markets can be volatile, there is strong evidence to suggest that these EM offer better long-term growth potential than developed economies. With stocks in EM and international markets set to beat U.S stocks according to Goldman Sachs.

Many leading experts would also argue in favour of Emerging markets due to favourable long-term growth opportunities. JP Morgan highlight that following a long bear market, emerging markets are now entering a bull market cycle. JP Morgan Strategies identify that EM are priced well for investors. 40% below their February 2021 cycle peak.

Tom Stevenson at Fidelity International argues “that as a rule of thumb investors should invest less than 10% and no more than 20% of their portfolio”. Morgan Stanley suggest this should be higher at 26%.The FTSE Global All Cap currently invests around 10% of it’s allocation to Emerging Markets.

Your perspective on Emerging Markets growth, may lead you to conclude your current portfolio is underweight on Emerging Markets. There are a growing number of red flags, that are pushing investors to seek shelter in emerging markets. Investing in Emerging Markets is therefore not only a question of growth prospects, but risk factors for investing in Developed Markets

The Bull Case For Emerging Markets

Courtney Garcia, Payne Capital Management senior wealth advisor, explains how shifting market sentiment and fundamentals have created a potential bull market for Emerging Markets. With China indices up 20% from their lows this could indicate the start of a bull market.

The wealth advisor continues to explain how investors can invest in Emerging Markets with broad exposure to VWO and EEM. This short clip on Emerging Markets is worth a watch.

Future Changes in the FTSE Global All Cap Composition

As the global economy evolves, it’s likely that the composition of the FTSE Global All Cap Index will shift over time. In particular, as the market capitalizations of companies in other countries and regions increase, it’s possible that the index’s weighting towards the US will decrease.

China’s economy has been growing rapidly in recent years, and many experts predict that it will eventually overtake the US as the world’s largest economy. If this happens, it’s likely that the FTSE Global All Cap Index will begin to shift its investments towards Chinese companies.

It’s almost impossible to predict exactly when or how these changes will occur. Economic growth rates and market capitalizations can be influenced by a wide range of factors. This includes government policies, geopolitical tensions, and natural disasters. As a result, it’s important to take a long-term view when investing in global markets and to be prepared for some level of volatility and uncertainty.

Conclusion FTSE Global All Cap: Adequate Exposure to Emerging Markets?

We now expect that economies such as China, whilst volatile will make up an increasing share of the global economy. Why not hedging in favour of China now. That way we can reap the benefits of growth.

Diversifying a portfolio beyond the S&P 500 and investing in global markets can be an effective way to reduce overall risk and potentially increase returns over time. The FTSE Global All Cap Index is a popular option for global diversification, but it’s important to understand its limitations and consider all options for achieving diversification.

Shifts in the global economy may naturally lead to a decrease in the FTSE Global All Cap index’s weighting towards the US over time. On the other hand EM may form a much larger part of the allocation. When and how fast this will happen is almost impossible to estimate.

Popular Emerging Markets Funds

Investors looking to capture the potential gains of Emerging Markets may want to consider benefits of actively managed global equity funds. Alternatively investors may look towards self-diversifying using a fund such as Emerging Markets Fund.

This may include such funds as:

ESG Options Available:

Ultimately, investors should work with a financial advisor to determine the best investment strategy for their individual needs. By taking a thoughtful and informed approach to global investing, investors can achieve a well-diversified portfolio that aligns with their goals and helps them achieve long-term financial success.

When investing capital is at risk.

Conclusion: FTSE Global All Cap VS Emerging Markets

Investing in the stock market can be a great way to build wealth over time. It’s important to diversify your portfolio beyond just one market or sector.

Emerging market economies offer favourable investment opportunities due to their macroeconomic factors and lower levels of debt compared to developed countries. While these economies may be more volatile in the short-term, they offer greater long-term growth potential.

It is worth noting that the FTSE Global All Cap Index does invest around 10% in Emerging Market funds. Therefore there is a healthy level of limited exposure so Emerging Markets. It very much depends on the investors conviction in Emerging Markets or doubt in the United States economy, as to whether this is enough.

As with any investment, it’s important to think about how an EM equity fund fits into your overall portfolio. Specifically, be sure your allocation to equity funds fits your investment timeframe and risk tolerance.

How To Get Started With Investing In The Stock Market

It’s hard to know what the best investments for your future are and it can seem overwhelming to make an informed decision. Here are some useful tools & guides to help you get started.

Of course, investors should always do their due diligence before investing in any market, but it’s important to consider emerging markets as part of a well-diversified portfolio. Working with a financial advisor can also help investors determine the best investment strategy for their individual needs.