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(February
28, 2012)  –  High returns with lower than average volatility are
possible from emerging markets through a certain subset of listed equities,
according to a Yale professor.

Affiliate
companies of large multinationals that are listed in developed markets produce
a better return than independent, locally-listed emerging market companies,
according to Martijn
Cremers, Associate Professor of Finance at Yale School of Management.

Cremers
said: “These affiliates combined the higher performance with lower volatility,
and especially lower down�side volatility. Their performance during the
financial crisis was particularly good, compared to both their local markets
and the developed markets, and especially so in Asia. We offer two main reasons
for this outperformance: improved corporate governance and a stabilizing role
of the parent companies.�

Cremer
said these factors had seemed critical during the financial crisis and provided
affiliates with “a clear comparative advantage over their local competitors
that should endure in the foreseeable future�.

The
paper showed emerging
markets had generally
outperformed developed nations in the 13 years to the end of June 2011. The
MSCI index tracking emerging markets in Asia had risen 15.1%; in Europe, the
Middle East and Africa it was up 14.6%; and in Latin America the index was up
19%. This compared to the MSCI World, tracking all countries, had risen only
5.2%.

Aberdeen
Asset Management, which commissioned the study, said there were 92 such
companies across the emerging world and drew the example of grocery producer
Unilever. The company has listed affiliates in India, Indonesia and Pakistan in
which it has stakes of 37%, 85% and 75% respectively.

Aberdeen
said: “Over the thirteen years from June 1998 to June 2011, a period chosen for
its balance between sample size and history length, the listed affiliates
returned 2,229%. This compared with total returns of parents, local markets and
parents’ markets of 407%, 1,157% and 147% respectively.�

Earlier
this month, a research arm within Deutsche
Bank warned that investing in
emerging market-listed equities was no solution for investors seeking high
returns. The paper, released by the bank’s ‘cash return on capital invested’
(CROCI) basis, said that despite annual GDP increases for many of these nations
sitting comfortably in double digits, emerging market equities showed a lack of
real earnings growth.

Peter
Elston, Head of Asia Pacific Strategy Asset Allocation, commented on the
paper by Cremers: “While there will continue to be home grown success stories,
the strong corporate culture of affiliates is a competitive advantage for the
companies in this select group is hard to ignore. Opportunities in emerging
markets are perhaps more attainable than ‘stay-at-home’ types think.�