Wealth managers increasing exposure to emerging markets amid positive sentiment

Positive sentiment among UK wealth managers towards emerging markets is translating into increased portfolio allocations, according to Franklin Templeton.

Its latest UK Emerging Markets Survey suggested that emerging markets were becoming a more established component of portfolio construction.

Wealth managers were found to be increasing allocations, taking a longer-term approach to the asset class, and becoming more selective about where they see opportunities.

Half (50 per cent) of wealth managers surveyed viewed emerging markets as the most attractive equity opportunity over the next 12 months.

Almost half (49 per cent) had increased allocations to emerging markets over the past year, while 60 per cent expected to increase exposure again over the next 12 months.

Just 4 per cent of wealth manager respondents planned to reduce their allocations.

Wealth managers were also becoming more selective about where they saw the strongest opportunities, with Asia (excluding China) cited by 53 per cent as offering the greatest growth potential over the next three to five years.

This was followed by India (43 per cent), while Latin America was seen as the most underappreciated opportunity (23 per cent).

Franklin Templeton said these findings suggested wealth managers were increasingly focusing on regional opportunities rather than broad asset-class exposure alone.

Emerging markets were increasingly being viewed as long-term investments, with 75 per cent of wealth managers who increased allocations reporting those changes contained a structural component.

Four in 10 (40 per cent) described the move as structural and a further 35 per cent said it was a combination of structural and tactical decisions.

However, improving sentiment had not alleviated risk concerns, with 69 per cent of wealth managers identifying geopolitical and political developments as the biggest influence on allocation decisions.

Franklin Templeton said this suggested wealth managers were balancing growth opportunities with a careful assessment of the factors that could influence outcomes across different regions and markets.

As allocations grow, wealth managers were found to be seeking deeper country-level research, more granular data, clearer geopolitical frameworks, and greater access to local expertise to better understand and communicate emerging market opportunities and risk.

"Emerging markets have spent much of the past decade as tomorrow's opportunity but what is striking now is that wealth managers are putting real money behind that conviction,” said Franklin Templeton Institute global investment strategist, Michael Browne.

“Most remain bullish yet underweight, and the data suggests they are more than twice as bullish on Asia ex China than on Latin America.

“The strongest interest lies in markets such as India and Asia outside China, driven by Taiwan and South Korea and very much part of the global AI trade. But this is not a simple return to buying market trackers.

“There is a clear value bias and a growing selectivity. Investors are looking closely at India and China as the next opportunity, while political risk remains firmly in view.

“A period of calm stability would be unequivocally bullish for the asset class. That combination of greater conviction and greater selectivity should favour active investors who can distinguish between countries, companies and the risks already reflected in valuations."

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