Why now is the time to buy emerging markets

The MSCI Emerging Markets index, which comprises the biggest shares that these regions have to offer, is currently trading on a price-to-book ratio of below 1.5pc, which is the lowest it has been since 2007.

Research by JP Morgan has found that since 1995 each time this valuation has dipped below 1.5pc the stock market in the next 12 months has tended to deliver returns above 10pc.

This occurred in both July 1996 and November 2002, when emerging markets suffered a torrid spell. Shares rose by 27pc and 30pc respectively in the following 12 months.

Richard Titherington, who heads the emerging markets team at JP Morgan, said: “Investors buying for the long term will find this is an attractive entry point.” Others also rate emerging markets as a great buying opportunity.

Mick Gilligan, an analyst at broker Killik & Co, said now was the best time to buy emerging market shares since 2002, when the economies were rocked by a currency crisis. “Now is a good time to get in – or if you already have investments in these fast-growing economies it is worth topping up.”

Others were more cautious. Andrew Merricks, head of investment at Skerritts Wealth Management, pointed out that a number of emerging market nations had elections taking place or approaching, including India, Brazil and Nigeria. Mr Merricks said political uncertainty would continue to spook markets. “With all the uncertainty surrounding forthcoming elections I think there is more of a chance that losses will continue,” he said, cautioning investors to expose only 5pc of their portfolios to the sector.

Most warn against single country funds, which for example buy shares only in China or India, and instead favour funds with a wider remit across emerging market regions.

Strongly performing funds include First State Asia Pacific Leaders and Newton Emerging Income. Mr Gilligan also tipped the Lazard Emerging Markets fund. If you prefer investment trusts, the Templeton Emerging Markets trust is run by Mark Mobius, who has been investing in the emerging markets for more than 30 years. A useful tactic when buying an emerging markets fund is to set up a regular investment plan. This “drip-feeding” irons out short-term volatility.

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