(Bloomberg) -- Mercer LLC, an investment consultant that oversees $16.2 trillion in global assets, is recommending diversifying into emerging markets before the sweet spot in which the US economy finds itself vanishes.
“We’re in a real Goldilocks moment for the US economy right now and for large proportions of the global economy,” said Rich Nuzum, chief investment strategist at the New York-based firm, which counts sovereign wealth funds, insurers and pension managers as clients. These moments “are rare in the global economic cycles, they don’t last long and in the fairy tale, the bears do come back.”
Mercer is advising investors and asset allocators to diversify into emerging markets across all their asset classes due to better growth prospects and valuations.
The recommendation comes as emerging-market stocks have started to outperform their US counterparts for the first time in years, getting a boost from the first US interest-rate cut in four years and China’s stimulus bazooka. The MSCI emerging-markets index jumped 11% over the past three weeks, compared with a gain of 3% for the S&P 500.
Read: BofA’s Hartnett Sees International Stocks Among Best China Plays
Back in April, Nuzum recommended that retail investors capture growth in the developing world by investing in US multinationals. Now he said “we’re advocating moving up the allocation to emerging and frontier market holdings.”
Stimulus that will come from Fed rate cuts is another reason to increase emerging-market exposure because many trade heavily with the US, several have currencies pegged to the US dollar and half of emerging-market government debt is issued in hard currencies, he said.
“When the US starts to ease, that stimulates their local economies too,” he said. With more rate cuts in the pipeline, “that’s going to be a lot of stimulus for emerging markets.”
Other factors that favor emerging markets over the US are younger, expanding workforces and higher expected growth rates, he said.
“The US stock market should continue to do reasonably well, but the emerging and frontier markets have the opportunity to come from behind in terms of strength of policy and productivity, with much better demographics,” Nuzum said. “That creates a long-term advantage. I do think emerging and frontier markets should outperform the US going forward.”
©2024 Bloomberg L.P.