Absa Capital sees diversifying value in Emerging Markets investments

Absa Capital, the corporate and investment banking division of Absa Bank (Ltd), and affiliated to Barclays Capital, believes it is becoming ever more important for investors to have exposure to the Emerging Markets, and more specifically the BRIC economi

Despite some investors recently reviewing their view on emerging markets in favour of developed markets, Absa Capital believes that this is largely due to the risk aversion stance underway in response to the European debt crisis. Absa Capital, however, maintains that the BRIC group of economies is still a geographical asset class that offers relatively good value for investors.

According to Dr Vladimir Nedeljkovic, Head of Investments, investors have an appetite for investments in the BRIC area, but adds that volatility is of concern.

“One way to smooth the returns on such investments is through the use of proven algorithmic strategies that dynamically allocate funds between the risky asset, the index, and the safe assets, cash, depending on the volatility in the market,” says Nedeljkovic.

Such strategies will over-allocate toward low risk assets (e.g. cash) when the market volatility is high, and allocate more to equities when markets are smoother than normal - thus limiting the overall volatility of the portfolio.

“Absa Capital has seen a lot of interest expressed after the recent launch of the LEIPS BRIC Optimiser – a protected investment that gives investors exposure to the equity market along with capital protection and a reduction in volatility,” says Nedeljkovic.

The BRIC Optimiser is based on an S&P BRIC 40 Daily Risk Control 15% Index.

“The global trend we are observing in the industry, especially in products intended for cautious investors, is to opt for products with limited volatility of returns. That way providers can offer exposure to high yield assets, but without the rollercoaster ride usually associated with those markets,” concluded Nedeljkovic.