Global challenges in asset management

Global challenges in asset management Emerging markets shift gears A report from The Economist Intelligence Unit Commissioned by Global challenges in asset management Emerging markets shift gears Contents Introduction From yield to maturity: Development of local currency debt markets Emerging markets: Alpha, beta or bust? Conclusion 11 © The Economist Intelligence Unit Limited 2014 Global challenges in asset management Emerging markets shift gears About the report Global challenges in asset management: Emerging markets shift gears is based on two webinar events held by The Economist this year: one held in Kuala Lumpur on September 3, 2014 and another held in Dubai on October 27, 2014 The webinar events and this report are sponsored by Malaysia’s Islamic Finance Marketplace The focus of the event in Kuala Lumpur was local currency debt markets—their relative maturity, market trends and obstacles to further development The event in Dubai looked at investment strategies in emerging markets and the relative advantages of active and passive approaches The aim of both events, which were moderated by a senior editor from The Economist Intelligence Unit, was to bring together expert panelists to engage each other in dialogue about how emerging market investing has become a challenge to asset managers The events also uniquely sought to include Islamic perspectives on the issues in focus for a more diverse and robust discussion © The Economist Intelligence Unit Limited 2014 About the sponsor Since its introduction more than 30 years ago, Islamic finance in Malaysia has developed into a comprehensive and sophisticated Islamic finance marketplace Malaysia’s Islamic finance marketplace is served by the Malaysia International Islamic Financial Centre (MIFC) Community, founded on the launch of the MIFC initiative in 2006 The MIFC Community is a network of the country’s financial sector regulators, government ministries and agencies, industry players from the Islamic banking, takaful, re-takaful and Islamic capital market industries, human capital development institutions as well as professional ancillary services companies ranging from legal firms and Shariah advisories to tax and audit firms and research companies For more information on Malaysia’s Islamic finance marketplace, please visit www.mifc.com Global challenges in asset management Emerging markets shift gears Introduction One would think that with the S&P 500 in a bull market and bond yields still generally very low that asset managers would be struggling to come up with complaints Such is not the case Today, the global asset management industry faces multiple challenges, including navigating central bank policy divergences, finding sustainable sources of risk-adjusted returns and managing exposures to myriad risks, including those stemming from regulatory actions and political events Mohamed El-Erian, chief economic adviser to Allianz and chairman of US President Barack Obama’s Global Development Council, recently noted the fund management industry has enjoyed a wave of central bank liquidity that broadly boosted asset prices, but needs to consider life without such extraordinary support “The longer the wave persists, the greater the challenges it poses for the industry in future Asset managers would be well advised to prepare now rather than get caught out when the wave ultimately breaks,” Mr El-Erian wrote in commentary published in September.1 Investors in emerging markets (EM) certainly anticipated the wave breaking last year Expectations that the Federal Reserve would wind down its quantitative easing programme led to a broad sell-off in EM assets However, US bond yields have remained remarkably low, supporting EM fixed income markets this year Underlying fundamentals are difficult to read, while recent economic data from China and Brazil have not been particularly promising Credit growth in China, which has been a key driver of economic activity since the financial crisis, dropped in July, the lowest in more than four years before rebounding somewhat in August Brazil slipped into recession in the first half of the year Argentina’s recent debt default, the ongoing standoff in Ukraine and new political leadership in India and Indonesia altogether paint a complicated picture This report is focused on the challenges of EM investing The supposition is that it is no longer prudent to treat EM as a single bloc Growth has shifted to a lower gear in large EM economies, but the impact on investment opportunities is not uniform Economic fundamentals in these markets appear to have become more differentiated and thus investors need to adapt Financial Times, “Post-QE wave to break over fund managers”, Sept 2014 © The Economist Intelligence Unit Limited 2014 Global challenges in asset management Emerging markets shift gears From yield to maturity: Development of local currency debt markets For a playback of the webinar, click here Panel discussion participants: • Ahmad Najib Nazlan, executive director, Amundi Islamic Malaysia • Badlisyah Abdul Ghani, chief executive officer, CIMB Islamic Bank Berhad • Donald Amstad, director, Aberdeen Asset Management • Mohd Daud Bakar, founder and group chairman, Amanie Advisors • Kevin Plumberg, senior editor, Economist Intelligence Unit For many investors, a question mark has over the local currency bond markets since May 2013 when fears of Federal Reserve tapering triggered widespread volatility EM local currency bond funds have suffered net outflows of US$4bn so far this year, in contrast to EM hard currency bond funds, which have absorbed net inflows of US$16.5bn.2 Are local currency bond markets mature enough to deal with such an outflow of foreign capital? Are the pools of liquidity deep enough to handle sudden reversals in the movement of capital and these markets have a variety of issuers to attract an equally diverse investor base? To these questions, the panellists generally agreed that local bond markets in emerging economies have Recovery mode? JPMorgan GBI-EM index, 2011-2014 Yield (%, left scale side) Data as of Nov 6, 2014 JPMorgan, EM fixed income flows weekly, Nov 6, 2014 Market value (US$bn, right scale side) 8.0 1,800 7.5 1,700 7.0 1,600 6.5 1,500 6.0 1,400 5.5 1,300 5.0 1,200 4.5 1,100 4.0 2011 1,000 2012 Source: JPMorgan © The Economist Intelligence Unit Limited 2014 2013 2014 Global challenges in asset management Emerging markets shift gears matured significantly and while last year’s sell-off was painful, the fact that markets have rebounded relatively quickly suggest resilience to large outflows “In terms of the way the debt markets have matured, we have a pretty much full yield curve,” said Donald Amstad, director of business development at Aberdeen Asset Management Unlike a decade ago, there are a dozen markets where an investor can buy bonds for any duration from year to 10 years It is an important development because foreign investors can adjust their duration, or exposure to interest rate changes, by shifting between maturities and they can aim for higher returns through more complex trades that may require buying bonds from one end of the yield curve while selling bonds on the opposite end of the curve EM local currency debt market at a glance • Outstanding debt reached US$9.1trn, or 87 percent of total EM debt, as of December 2012 • Local banks dominate holdings of the asset class, but domestic insurance and pension funds have been increasing participation in the market • Foreign investors on average account for 27 percent of local debt demand • Local currency bond funds have seen net capital outflows of US$4bn in 2014, as of Nov VARIETY OF INVESTORS Citing one of the ways that local markets have matured, Ahmad Najib Nazlan, executive director at Amundi Islamic Malaysia, said that there are today a “myriad of investors” including local pension funds, statutory bodies and central banks that make it attractive for issuers to tap capital markets for funding Badlisyah Abdul Ghani, chief executive officer of CIMB Islamic Bank Berhad, said that the market in Malaysia is deep enough to ensure adequate demand for ringgit-denominated bonds The depth of Malaysia’s bond market has two implications, he said First, there is little need for Malaysian companies to tap foreign bond markets unless they require foreign currency for their businesses Second, some foreign issuers have become keen on tapping the local investor base in Malaysia for funding and swapping the proceeds into other currencies Investors in Malaysia also have a strong appetite for sukuk issues, another key component of the local debt market Often referred to as the Islamic equivalent of a bond, sukuk is a structure in Islamic finance that grants investors a share of an asset, which the investor rents back to the issuer for a rental fee This structure is permitted by Islamic law, as opposed to traditional bonds, which involve the charging or paying of interest The continuing strong appetite for sukuk among Malaysian investors could encourage a greater number of Malaysian companies to tap this market, Mr Ghani said A NEED FOR BETTER TOOLS Malaysia has the largest local currency sovereign debt market in the ASEAN region But emerging markets as a whole contain many different levels of maturity Moreover, many local bond markets still need better tools to provide investors with more flexibility Mr Nazlan said: “There are aspects of these markets that have to be developed further, in terms of risk management tools, the interest rate swap market, the currency swap markets.” © The Economist Intelligence Unit Limited 2014 Global challenges in asset management Emerging markets shift gears We are going to see more corporates, including some of the larger SMEs— who previously only tapped the banking sector—coming to tap the bond market Badlisyah Abdul Ghani, CIMB Islamic The fact is that by definition local currency bond markets have inherent currency risk, which make them a riskier proposition than bonds denominated in US dollars or euros This may deter foreign investors with strict constraints from participating in local currency debt markets Governments in some cases may want to offer incentives such as the provision of swap arrangements for foreign investors looking to invest in currencies other than hard currencies, Mohd Daud Bakar, founder and group chairman of Amanie Advisors, said He added that advanced swap programmes are needed to allow foreign investors to take a longer term view of a market for without them, it can be challenging for them to invest “We have to facilitate the risk appetite of foreign investors,” he said CORPORATES COME TO MARKET In another sign of the increasing maturity of the local debt markets, EM companies are expected to increase their home currency bond issuance, offering investors a much greater array of choices This is where panellists believe the next phase of development for the industry lies Mr Amstad said that corporate bonds currently tend to be relatively illiquid and expensively priced Outstanding local currency corporate bonds grew over 10 percent in USD terms in 2012 to US$6.8trn, though the bonds are not heavily traded and pricing not always so transparent.3 Ashmore, Growing opportunities in emerging market corporate bonds, March 2014 In Islamic finance, non-sovereign sukuk issues are also expected to grow, as a greater variety of “borrowers” become comfortable with the non-traditional structure For established sukuk funds and bond funds with constraints that would allow allocation to sukuk, the potential for added portfolio diversification is likely attractive, particularly after the UK’s first sovereign sukuk issuance in June and Goldman Sachs’ announced plans to issue sukuk Standard & Poor’s Ratings Services forecasts issuance of corporate and infrastructure sukuk in the Gulf Cooperation Council (GCC) and Malaysia to increase over the next few years, owing to growing refinancing needs of companies and as more organisations establish themselves as issuers of sukuk GLOBAL FACTORS IN LOCAL MARKETS However, companies should increasingly be able to get longer-term financing from the bond markets domestically rather than having to rely on banks “We are going to see more corporates, including some of the larger SMEs—who previously only tapped the banking sector— coming to tap the bond market for financing,” Mr Ghani said The near-term outlook for local currency bond markets may hinge on factors that are beyond the control of local governments The US Federal Reserve is widely expected to raise its benchmark interest rate in 2015, and the European Central Bank (ECB), which is struggling to avoid deflation, could turn to full-blown quantitative easing (QE) The growth of local currency corporate bond markets will also bring new risks For example, The Federal Reserve’s asset buying programme ended in October and the EIU predicts the benchmark Fed funds rate will rise during the new EM corporate bond issues may not be rated by one of the main credit rating agencies on which global investors rely Unrated bonds can be cheaper than rated ones and thus hold the potential for investors to find value However, picking and choosing between unrated bonds requires capabilities to conduct in-depth credit analysis and awareness of the differences between the advanced and EM landscapes For example, in EM, there is significantly less clarity about the rights of bond holders in the event of a bankruptcy of the bond issuer compared with the US market © The Economist Intelligence Unit Limited 2014 Global challenges in asset management Emerging markets shift gears second half of 2015 Rising interest rates risk triggering outflows from local currency bonds, as the gap between local interest rates and US rates shrinks ECB action could actually provide a countervailing force if it unleashes QE of its own, following in the footsteps of the central banks of Japan, the UK and the US Such action could add significant liquidity to global markets A SEISMIC EVENT In Asia, the panellists expect two events will mainly shape the long-term outlook on local currency EM bonds The first is the opening of the capital account and capital markets in China — a “seismic event” for the global financial system, said Mr Amstad, who compared its importance with the launch of the euro The size of China’s economy means its deeper integration into the global financial system will significantly change global capital flows Considering that China is currently not a constituent of various benchmark bond indices, the opening of the country’s capital account will have a major bearing as China’s weight in indices is going to be “extraordinary”, according to Mr Amstad The domestic bond market in China today, for instance, is worth US$3.5trn To put that in perspective, the JPMorgan Emerging Market Bond Index, the GBI-EM and the Corporate Emerging Markets Bond Index put together had a combined market cap of US$2.8trn as of the end of 2013 The second event that could shape the outlook for local currency bonds is the formation of the ASEAN Economic Community (AEC), which is officially scheduled to come into being in 2015 Though the timetable is uncertain, the AEC is expected to have a profound impact on ASEAN’s local bond markets Mr Nazlan said closer integration between economies and markets in South-east Asia should theoretically result in greater transparency in bond pricing and freer flow of capital across borders The opening of China’s capital account and capital markets will be a “seismic event” for the global financial system Donald Amstad, Aberdeen Asset Management Integrated local debt markets in ASEAN would be an exception rather than the rule The panellists agreed that while local bond markets have generally matured significantly over the past several years, they remain fragmented on the basis of their different market structures These markets remain highly idiosyncratic, but for active investors that may be a source of potential alpha—or above-benchmark returns Indeed, the growing maturity of local bond markets may require investors to reconsider which strategies are the most effective © The Economist Intelligence Unit Limited 2014 Global challenges in asset management Emerging markets shift gears Emerging markets: Alpha, beta or bust? For a playback of the webinar, click here Exclusive one-on-one interview: • Mark Mobius, executive chairman, Templeton Emerging Markets Group Panel discussion participants: • Wan Kamaruzaman Wan Ahmad, chief executive officer, Retirement Fund Incorporated (KWAP), Malaysia • Andrew Goldberg, global market strategist and head of the market insights strategy team in Europe, JPMorgan • Gaurav Mallik, portfolio strategist, active emerging markets investment team, State Street Global Advisors • Andreas Zingg, director, head of iShares Middle East & Africa, BlackRock • Kevin Plumberg, senior editor, Economist Intelligence Unit Market volatility in late October, following Dilma Rousseff’s narrow victory in Brazil’s presidential election, was a good example of one of the main challenges of investing in EM Ms Rousseff’s win – interpreted by investors as detrimental to the broader economy - immediately sent the markets in a spin Brazil’s real fell 3.1 percent against the US dollar in a single day to its lowest level since May 2005 and the Sao Paolo stock market slumped percent What is the best approach to navigating these markets: actively managing a portfolio or using a passive approach? Brazil is also a good example of an EM economy seeing growth slow considerably That only has made the question of what investment strategy to use even more pertinent Active investors often say that their approach makes a lot of sense in EM because of the inefficiencies in markets that can be exploited by a skilled investor Andrew Goldberg, global market strategist with JPMorgan, said developing economies are © The Economist Intelligence Unit Limited 2014 not a bloc, and “it’s important to drill down, differentiate and know, for example, who’s more susceptible to rising rates in the US versus who’s more insulated” Isolating the impact of growth in the US, Europe and Japan on EM, for example, shows that individual EM countries are affected differently, depending on whether they are commodity exporters or manufacturing economies DIFFERENTIATORS Differentiation is certainly part of Mark Mobius’ approach to pursuing EM opportunities Mr Mobius, executive chairman of Templeton Emerging Markets Group, said the markets in which he has the highest conviction are China, India and several frontier economies Drilling down further, Mr Mobius is focused on the banking sector as a way to access the growing wealth of consumers He also is focused on the leisure and healthcare industries Global challenges in asset management Emerging markets shift gears An advantage of stock pickers is that they can potentially root out opportunities that others overlook In this respect, frontier markets, including those in Africa and the Middle East, are where Mr Mobius has been paying more attention lately Yet why couldn’t an investor seeking more exposure to frontier markets, which are essentially aspiring emerging markets, buy exchange-traded funds (ETFs) for a much lower cost than buying an actively managed fund? That question summed up a dilemma in the asset management industry today, but it was also an area where Mr Mobius recommended caution, particularly when it came to frontier markets As frontier market ETFs grow in size, it will be increasingly difficult for them to replicate an underlying index of relatively illiquid markets without creating an unwanted market impact “Going into frontiers with ETFs would be a dicey and risky adventure,” Mr Mobius said PASSIVE AGGRESSIVE… Regardless of the debate over frontier market ETFs, passive strategies are being increasingly deployed by investors to get wider exposure to the macro fundamentals of EM economies Proponents say instruments such as ETFs enable investors to have a greater diversity of exposures across EM at a lower cost than actively managed funds Furthermore, passive investing is not just about putting one’s money in an index or ETF and waiting for it to rise So-called smart beta investing involves creating tailored indexes that are not based on the traditional criterion of market capitalisation Andreas Zingg, head of iShares Middle East & Africa with BlackRock, said smart beta strategies are a way to manage – and even benefit from – the rise in volatility that EM stocks have seen in the past year A minimum volatility index is designed to outperform broader markets in adverse conditions Mr Zingg pointed out that in the past three years the iShares MSCI EM Minimum Volatility Index outperformed its parent index by more than 15 percent OR HYPER-ACTIVE? On the flipside, active investment strategies, although more costly, enable investors to exploit opportunities that arise as a result of market imbalances and differentiated economic growth rates across EM The belief of the active investor is that the increase in price volatility in EM bonds and equities as well as the divergent economic growth trends are ideal conditions for a skilled manager to sift through assets being unloaded in a hurry to find interesting opportunities Gaurav Mallik, portfolio strategist at State Street Global Advisors, said that even in developing economies that are witnessing healthy growth rates and sound fundamentals, it is important to identify the drivers In India, for instance, most of the growth has come from consumer-oriented sectors, so a recovery may eventually spread to the industrial and financial sectors An active manager would thus drill down in these sectors and filter opportunities Going into frontiers with ETFs would be a dicey and risky adventure Mark Mobius, Templeton Emerging Markets Group In terms of how investors have been accessing active opportunities, Mr Mallik said regional, country-specific and small-cap funds have been popular, with the latter being a more recent focus Mr Zingg from BlackRock added that investors have been increasingly interested in regional and single country EM ETFs as well However, timing bets on the market by using country-focused ETFs is difficult to get right Active stock selection can face the same challenges of market timing, but allows investors to manage the impact of currency fluctuations on international investments EM currencies have been a significant source of market volatility in the past year © The Economist Intelligence Unit Limited 2014 Global challenges in asset management Emerging markets shift gears Diverging markets Currencies vs the US dollar, September 1st, 2013=100 Russian rouble Indian rupee Indonesian Rupiah Turkish lira Brazil real South African rand 110 110 105 105 100 100 95 95 90 90 85 85 80 80 75 75 70 70 65 65 60 60 Sept 2013 Oct Nov Dec Jan 2014 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Source: Thomson Reuters THE RIGHT MIX? Ultimately, the choice of whether to use an active or passive investment strategy in EM is based not only on the strength of the approach but also on an investor’s objectives Achieving investment targets may involve a mix of alpha and beta strategies based on their tolerance of risk, such as multi-asset strategies While such a mixed strategy could result in diluted alpha as well as higher costs of investing, the potential for portfolio diversification is an advantage Mr Goldberg from JPMorgan said a recent example that has been popular with investors is combining EM debt and EM equity investment strategies in pursuit of income SHARIAH CHOICES Wan Kamaruzaman Wan Ahmad, chief executive of Retirement Fund Incorporated (KWAP), Malaysia, says the US$33bn fund is currently invested entirely based on“socially responsible investing” (SRI) principles To this end, Mr Wan added that the fund would be looking 10 © The Economist Intelligence Unit Limited 2014 to hire external managers to further develop capabilities when it comes to environmental, social and governance portfolios, otherwise known as ESG investments The fund has recently started investing more in shariah compliant instruments, too Shariahcompliant strategies are sometimes included as a part of the wider universe of socially responsible investments, because Islamic finance bars dealing with businesses that engage in sinful or irresponsible activities – similar to the focus of SRI portfolios How those are defined of course are up for interpretation Could KWAP cut costs by investing more in passive strategies? Possibly, but creating more ETFs that track Islamic indexes is challenging because of a lack of global or regional standards, said Mr Zingg “It is hard to identify standards That makes it difficult for us because when we have product ideas, we share it very early with clients and we need strong and clear feedback to push the button and to launch a product,” he added Global challenges in asset management Emerging markets shift gears Conclusion Our webinar discussions revealed three key challenges that investors face today when it comes to global EMs: lower growth in some developing economies, poor performance and divergent monetary policies in advanced economies Global economic woes are not expected to abate anytime soon, and the EIU has consistently lowered its 2014 and 2015 growth forecasts We estimate the global economy will grow 3.1 percent in 2014, lower than the 3.6 percent forecast in January EM economies are expected to post GDP growth of 4.5 percent in 2014, delivering the smallest premium over developed economies since 2000 If they haven’t already, asset managers will likely have to become accustomed to slower growth and increased fragmentation in EM The question of which investment strategy to use in EM will continue to be a vital one, though investment objectives should ultimately be the deciding factor in whether to use an active or passive approach Asking which is better, an active or passive approach when it comes to EM investing, is a false dilemma and really depends on what investors are aiming to achieve For example, Mr Wan from the Malaysian public pension fund KWAP says that his fund would likely outsource active strategies that not use benchmarks while bringing back some benchmark-driven mandates in-house to manage costs In addition, many asset managers are exploring blended strategies as a way to meet their clients’ targets Yet, slower economic growth has not had an impact on the development of local debt markets While local bond markets witnessed a large selloff last year, they saw a quick rebound, suggesting growing maturity and resilience EM corporate bond issuance has also continued to grow and offer investors a wider variety of investments An area that could have a significant bearing on EM prospects is structural reforms to manage economies more efficiently Today’s slower growth may act as a catalyst for these policy-led reforms, perhaps leading to better infrastructure in India, more consumption in China and more competitive manufacturing in Brazil and Russia The growing prominence of Islamic finance is promising too, with increased demand for shariah-compliant investment instruments from traditional investors as well Sukuk issuance, both sovereign and non-sovereign, has expanded, providing more portfolio diversification opportunities to a wider group of investors Developing economies account for more than 35 percent of the global GDP, but only 20 percent of global equity and 12 percent of global bond markets, suggesting substantial scope for growth But investors’ and asset managers’ adaptability and flexibility will likely be the largest determinants of EM prospects © The Economist Intelligence Unit Limited 2014 11 While every effort has been taken to verify the accuracy of this information, The Economist Intelligence Unit Ltd cannot accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in this report LONDON 20 Cabot Square London E14 4QW United Kingdom Tel: (44.20) 7576 8000 Fax: (44.20) 7576 8500 E-mail: london@eiu.com NEW YORK 750 Third Avenue 5th Floor New York, NY 10017, US Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 E-mail: newyork@eiu.com HONG KONG 6001, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: hongkong@eiu.com GENEVA Rue de l’Athénée 32 1206 Geneva Switzerland Tel: (41) 22 566 2470 Fax: (41) 22 346 9347 E-mail: geneva@eiu.com [...]... push the button and to launch a product,” he added Global challenges in asset management Emerging markets shift gears 4 Conclusion Our webinar discussions revealed three key challenges that investors face today when it comes to global EMs: lower growth in some developing economies, poor performance and divergent monetary policies in advanced economies Global economic woes are not expected to abate anytime... known as ESG investments The fund has recently started investing more in shariah compliant instruments, too Shariahcompliant strategies are sometimes included as a part of the wider universe of socially responsible investments, because Islamic finance bars dealing with businesses that engage in sinful or irresponsible activities – similar to the focus of SRI portfolios How those are defined of course... popular with investors is combining EM debt and EM equity investment strategies in pursuit of income SHARIAH CHOICES Wan Kamaruzaman Wan Ahmad, chief executive of Retirement Fund Incorporated (KWAP), Malaysia, says the US$33bn fund is currently invested entirely based on“socially responsible investing” (SRI) principles To this end, Mr Wan added that the fund would be looking 10 © The Economist Intelligence... growing prominence of Islamic finance is promising too, with increased demand for shariah-compliant investment instruments from traditional investors as well Sukuk issuance, both sovereign and non-sovereign, has expanded, providing more portfolio diversification opportunities to a wider group of investors Developing economies account for more than 35 percent of the global GDP, but only 20 percent of global. .. issuance has also continued to grow and offer investors a wider variety of investments An area that could have a significant bearing on EM prospects is structural reforms to manage economies more efficiently Today’s slower growth may act as a catalyst for these policy-led reforms, perhaps leading to better infrastructure in India, more consumption in China and more competitive manufacturing in Brazil and Russia... The question of which investment strategy to use in EM will continue to be a vital one, though investment objectives should ultimately be the deciding factor in whether to use an active or passive approach Asking which is better, an active or passive approach when it comes to EM investing, is a false dilemma and really depends on what investors are aiming to achieve For example, Mr Wan from the Malaysian... to use an active or passive investment strategy in EM is based not only on the strength of the approach but also on an investor’s objectives Achieving investment targets may involve a mix of alpha and beta strategies based on their tolerance of risk, such as multi -asset strategies While such a mixed strategy could result in diluted alpha as well as higher costs of investing, the potential for portfolio... estimate the global economy will grow 3.1 percent in 2014, lower than the 3.6 percent forecast in January EM economies are expected to post GDP growth of 4.5 percent in 2014, delivering the smallest premium over developed economies since 2000 If they haven’t already, asset managers will likely have to become accustomed to slower growth and increased fragmentation in EM The question of which investment... activities – similar to the focus of SRI portfolios How those are defined of course are up for interpretation Could KWAP cut costs by investing more in passive strategies? Possibly, but creating more ETFs that track Islamic indexes is challenging because of a lack of global or regional standards, said Mr Zingg “It is hard to identify standards That makes it difficult for us because when we have product.. .Global challenges in asset management Emerging markets shift gears Diverging markets Currencies vs the US dollar, September 1st, 2013=100 Russian rouble Indian rupee Indonesian Rupiah Turkish lira Brazil real South African rand 110 110 105 105 100 100 95 95 90 90 85 85 80 80 75 75 70 ... © The Economist Intelligence Unit Limited 2014 Global challenges in asset management Emerging markets shift gears About the report Global challenges in asset management: Emerging markets shift... leading to better infrastructure in India, more consumption in China and more competitive manufacturing in Brazil and Russia The growing prominence of Islamic finance is promising too, with increased... rebounding somewhat in August Brazil slipped into recession in the first half of the year Argentina’s recent debt default, the ongoing standoff in Ukraine and new political leadership in India and Indonesia