Australian superannuation fund trustees are being urged not to miss out on the growth opportunities in emerging markets, particularly in light of extremely concerning demographic issues ahead.
Speaking at the Association of Superannuation Funds of Australia (ASFA) conference in Adelaide, Investec Asset Management strategist Michael Power was full of praise for the Australian superannuation system, which he described as among the best in the world. However, he warned that with some very troubling times ahead, “these laurels are not for sitting on.”
While predicting massive growth over the next two decade in markets such as China and India, Power warned that Australia was currently right at the sweet spot of productivity and would begin to decline over the next 10 to 20 years as the proportion of retirees in the population grows significantly.
While emphasising that he was not selling the emerging markets story as a cure-all for future problems, he said the growth that was still to come from a variety of these markets was too good an opportunity to miss, and it was important Australian investors gear themselves into these improving demographic profiles.
Power told Super Review that he was becoming increasingly uncomfortable with the term ’emerging markets’, which he said was now being used as a handy term to group together all kinds of unrelated non-Western markets, many of which could now be considered significantly established.
The story in China was significantly different to those in Vietnam, Indonesia, Latin America and sub-Saharan Africa, and “some markets are more emerging than others”, he said.
Up until now it has been good enough to simply be invested in emerging markets through a vehicle such as an exchange traded fund (ETF) – “as long as you were on the right bus it didn’t matter who the driver was”, he said.
But Power told Super Review it was becoming increasingly important not only to be on the right bus but to make sure you have the right driver as well. He said rather than simply being invested in an Asian ETF, institutional investors would want to develop their own capabilities in these sorts of markets.
“Stock picking will become increasingly important,” he said.
Australian superannuation was still heavily invested in the ASX200, and the biggest risk for investors in the next decade was not that they would underperform their index, but that their index would underperform the new global reality, he said.
