QROPS ADVICE: Investment News: EMERGING MARKETS SET TO SOAR

Emerging markets seem set to be one of the growth stories of 2010, but most fund managers agree that it is not exports which lie at the heart of this story, as was initially thought, but rather the rise of the domestic consumer.

Ewan Thompson, manager of the Neptune Emerging Markets Fund, comments: "While the outlook for infrastructure, materials and manufacturing remains very positive in the medium term, we believe that moving into 2010 the most exciting investment opportunities will be found in the consumer sectors across emerging markets."

Chris Palmer, Gartmore's head of global emerging markets, expects corporate earnings growth to drive emerging markets in 2010. He says: "We estimate that earnings will grow by 25 per cent in 2010 compared with the price/earnings ratio of 13 times as of October 2009. At the same time, the return on equity from emerging market companies is over 40 per cent higher than that of the MSCI World Index."

Mr Palmer believes that, while the market rally of the past few months was characterised by an initial rebound from depressed levels of valuation, the next phase will be driven by growing corporate profits. Companies that can finance their growth through their own cash flows will have a key advantage - and here emerging market companies with their lower debt levels have the upper hand over their developed world peers.

While most financial advisers tend to favour generalist emerging markets funds, as these spread the risk across different geographical areas, Bryan Collings, manager of the Ignis HEXAM Global Emerging Markets Fund, believes country allocation will be crucial going into next year. He says: "Country allocation is as important as ever. By the end of 2010, we expect China, Russia and Turkey to have delivered strong returns. Growth in China could be much higher than 10 per cent, despite the central bank's pre-emptive attempts at monetary tightening."

With China set to continue its dominance in the emerging markets sphere, Anthony Bolton's imminent move to Hong Kong to manage a new portfolio dedicated to investing in China and China-related opportunities could be one fund to watch in 2010. While Fidelity keeps mum over whether the fund, expected to be launched in March next year, will be available to retail investors - Mr Bolton's impressive track record, together with the strong case for China, will certainly make this a compelling investment proposition.

Mr Pemberton says that, while 2009 saw the economic balance of power tilting even further towards Asia and the emerging markets, valuations are starting to look a little stretched and any corrections can be quite savage. But, as he believes exposure on a long-term basis is essential, he recommends buying on pullbacks. "First State Asia Pacific Leaders Fund and JPMorgan Emerging Markets Fund are good solid choices, while Allianz RCM BRIC Stars is a higher octane fund choice," he says.

http://www.investorschronicle.co.uk