A lack of transparency and sound data remain huge challenges in many emerging markets. So how should investors assess the risk of investing in emerging markets given the inefficient access to information? How does ‘economic transparency’ affect asset prices? The panel discussed the link between governance principles, asset prices, trust in government and investment volatility and what investors can do about it.[vc_quotes layout=”accordion” 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Key takeaways
Sovereign transparency helps improve the value of assets, enables countries to lower their borrowing costs and achieve a better credit rating.
The discount rate on assets shrinks as transparency improves resulting in assets going up in value.
Key points that help sovereign transparency include economic data being published in English and regularly updated.
Economic development and transparency are linked, making transparency crucial for emerging markets.
Transparency does not create more volatility but higher levels of sovereign transparency don’t necessarily increase levels of trust in a government.
Some countries (like Ukraine) have relatively high levels of transparency, but struggle to subsequently enforce rules and laws to deal with the challenges transparency reveals.
Asset owners have an important role in engaging on transparency.
Swedish buffer fund AP1 uses a corporate scoring process whereby more transparency increases a company’s weighting in its index investment.
AP1 has begun excluding fossil fuels from its entire exposure. The process has included launching some new funds and strategies with managers.
The decision was based on the fund’s climate and scenario analysis and the financial risk posed from fossil fuel groups.
In many cases, companies have the data investors want disclosed, but are often not aware of it.
The big difference between the vaccine rollouts and the scale of the stimulus measures across the world could result in a K-shaped global economic recovery, with much of the developed world booming but poorer countries continuing to struggle. However the
Farouki Majeed is worried about the future. His concerns are centred around the implications of the enormous US federal debt; the global competitiveness of the US and Chinese economies; inflation; and the potential erosion of the value of the US dollar.
Should we be thinking about investment differently in 2021? Certainly, there appears to be cause for challenge of current thinking on inflation rates and the rise of China in the new world order.
2020 was by just about any measure, unprecedented. Market volatility, regulatory change and the need to make decisions quickly – but largely remotely – put more emphasis than ever on dynamic and effective decision-making in pension investment committees. It was a true test of robust governance.
The COVID crisis and the volatility of 2020 has revealed some lessons for the investment team at Coal Pension Trustees (CPT). It has taken a more top down view of managing its portfolio looking at economic themes, risk exposures, cashflows and its manager roster holistically. Amanda White talks to CIO Mark Walker about where it sees return opportunities, the prospect of manager consolidation and how it has embraced technology for better investment practices.
The challenge of matching long-term investing with development needs in emerging and developing countries is discussed by Georg Inderst who suggests it might be time for asset owners to look at their role in blended finance.
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