Emerging Market Portfolio Globalization
The Next Big Thing
Policy Paper
July 17, 2014
In 2014 emerging markets have shown remarkable resiliency despite negative news and record foreign investor outflows. Jay Pelosky, founder of J2Z Advisory LLC, suggests the answer lies with financial asset expansion in the emerging economies themselves—or what Pelosky calls “a rising tide of middle-class wealth.”
This growth in emerging market financial assets, Pelosky argues, is “set to accelerate in the years ahead driven by middle class expansion and wealth creation, coupled with maturing financial services industries.” This development will have major implications not just for emerging economies but for the world market. To date, the vast majority of emerging market financial assets has been invested domestically. But Pelosky argues that a sea change in EM institutional allocation is beginning to occur, with the ultimate result being the “globalization of emerging market financial assets.”
As one example of this trend, Pelosky estimates that “in dollar terms, EM pension assets invested abroad could jump to roughly $2.2 trillion from $500 billion between 2012 and 2020.”