Equity markets in the emerging world have weathered the sub-prime credit crunch in developed markets more easily than any previous market turmoil, and are expected to remain a sought-after investment destination, if not a safe-haven, for many years to come, according to Steve Minnaar, head of equity research at Old Mutual Investment Group SA (OMIGSA).

Indeed, he says, last year’s shake-out of credit markets has helped to accelerate the investor shift to emerging markets from the developed world that has been underway since 2001, and even highlighted the desirability of emerging market assets. Investors are likely to take advantage of the expected faster growth rates and better relative returns to increase their exposure to emerging market equities, including some attractive companies listed in South Africa . 
Speaking at a presentation last year, Minnaar pointed out that emerging equity markets have outperformed developed markets since 2001, with the MSCI emerging market index moving up five-fold -- from just above 250 points in 2001 to around 1,300 points currently. By comparison, the MSCI world index recorded an increase of just over 70% over the same period.
In response to the sub-prime crisis in the US, some key emerging equity markets like South Africa saw immediate drops of 12%. However, they quickly recovered, and subsequently the MSCI emerging markets index has gone on to outperform developed markets. In fact, many investors reacted by shifting funds from the major developed markets to emerging markets.  In the fourth week of September alone, US$13 billion was withdrawn from US, Japanese and European equity funds, of which US$5.5 billion went directly into emerging market funds, according to EPFR Global, which monitors international fund flows.
“It’s still about the search for yield, and investors now have more knowledge of and confidence in, emerging markets,” said Minnaar. “US fund managers typically seek returns of over 10%, which they can’t get in their own market or Europe – they have to look elsewhere.
“Citigroup’s recent poll of Chief Investment Officers, representing over US$1 trillion in assets under management, showed that professionals plan to increase their emerging markets exposure from 5.7% to 15.1% of their portfolios over the next three years, while cutting US positions and maintaining those in Europe. Allocations to ‘other’ emerging geographies (like Africa) are expected to rise to 3.5% from 0.4% currently. This implies US$94 billion in fund inflows to emerging markets between now and 2010.”
African markets should benefit from this trend, Minnaar pointed out, attracting investments due to robust economic growth and improved liquidity and regulation in recent years. A November 2007 report from the World Bank showed sub-Saharan Africa economies grew at 5.4% y/y over the past decade, above the global average of 3.2% y/y, and were forecast to grow at 5.3% y/y in 2007 and 5.4% y/y in 2008.
“Too often South African investors look past Africa to more distant destinations for their emerging market investments, but they shouldn’t forget to look closer to home.  In sub-Saharan Africa today, outside South Africa, collective market capitalisation now stands at a substantial US$60 billion. Although the economies of the region are dominated by resources, because most resource companies are listed elsewhere, sub-Saharan equity markets are, in fact, dominated by financial counters, accounting for 48% of listed companies. Financial services and consumer-related companies are growing strongly in many countries, and these sectors are among those that should see accelerating growth in the future.”