The latest signal that indicates the plate tectonics of global investment are shifting came just recently and it has created the conditions for new structural flows into emerging market debt, according to Anthony Gillham, Portfolio Manager, Skandia Investment Group.
He said: "The recent shift may not have pushed the needle off the Richter scale, but Norway's decision to refocus its hugely influential US $600billion sovereign wealth fund into emerging market debt was of epic proportions for those of us who invest in the fixed interest markets.
"The loser in the Norwegian decision continues to be Europe as the fund re-focuses its bond allocation down from 60 to 40% and equities down from 50 to 40%. That's hardly surprising as our chums at the Financial Times report that Norway lost some £15billion on its European portfolio in the wake of the debt crisis.
"Technically, the Norwegians are following in the footsteps of some more enlightened asset managers by benchmarking their fund against GDP rather than market cap weightings. This gives a natural bias to EMD, particularly on the bond side where otherwise existing market cap benchmarks are distorted by heavily indebted countries.
"So the Norwegian decision is an important indicator as far as EMD is concerned. But what is even more interesting is that according to our contacts across the asset management industry worldwide, the Europeans – including the Norwegians – are ahead of the game when it comes to reallocating to EMD.
"The next big elephant in the room is likely to be the US from where the tsunami of dollars is likely to eclipse even Norway's modest efforts."