Emerging market equities are expected to show the heftiest returns in 2019, underpinned by a stronger economic background, said William Yun, executive vice-president at Franklin Templeton Multi-Asset Solutions, at an event in Toronto on Tuesday.

While the asset class is still muted compared to returns 20 years ago, the investment firm is working with the forward-looking outlook that emerging market equities will see a 7.2 per cent return, in an annualized seven-year perspective.

Emerging market economies’ GDPs are growing at a steady clip, especially relative to more developed countries, said Yun. Consumption from the rising middle class is pushing that growth, resulting in emerging markets comprising a larger portion of global GDP.

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“A growing middle class benefits many industries,” said Yun. “In India, for example, the middle class is expected to double in size from 250 million or so to over 550 million in the next 10 years, according to some local experts. And this benefits consumer discretionary, consumer staple, technology and even our business of investment management.”

Other economic indicators are more healthy for less developed markets, he added, referring to debt issuances in China and India demonstrating that those markets are becoming more independent. Both corporate and sovereign issuances are on the rise and, notably, they’re more likely to be in domestic currencies than ever before, showing less dependence on the U.S. dollar. Overall, the accompanying improvement in credit quality demonstrates these economies are becoming more stable and more attractive spaces for investment, said Yun.

As well, emerging markets are growing their currency reserves, which is another indicator of greater overall economic stability, according to Yun. “[They have] much more stable balance sheets, which we believe will lead to more sustainable growth.”

This also means these countries will be able to rely less on trade with more developed economies in the future, he added, noting China, rather than the U.S. — which dominated a decade ago — is taking in huge portions of exports from other emerging market companies.

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