20 February 2023
In 2022, Dutch households again invested more in emerging markets such as South Africa, Brazil and China. Despite net purchases, the value of these investments decreased to €2,241 million at the end of 2022 due to price losses, down from a record €2,631 million at the end of 2021.
In periods of low interest rates on savings as in recent years, it is relatively attractive for investors to take on more risk. As a result, investors see emerging markets (see Box 1) as an alternative asset class: they are more volatile and therefore more risky, so investors expect higher returns.
Over the whole of 2022, Dutch households invested relatively heavily in emerging markets, especially through investment funds. In 2022, these investment fund deposits amounted to a net €162 million, compared to €76 million in 2021 and €31 million in 2020.
Interestingly, listed companies from emerging markets mainly attract Dutch households when the company's shares are denominated in euro. Recent research shows that buying and selling emerging market investments in one's own currency is much less sensitive to international shocks. The majority of Dutch households opt for European investment funds that hedge the currency risk for investors in full or for the larger part.
Box 1: What are emerging market investments?
To determine investment holdings in emerging markets, 69 countries were selected that are part of the J.P. Morgan Emerging Markets Bond Index. This list includes the BRICS countries, i.e. Brazil, Russia, India, China (including Hong Kong) and South Africa. In addition, based on Refinitiv data, investment funds were selected with a specific focus on Emerging Markets in the broad sense, including Frontier Markets. This leaves out specific country funds. The analytical indicators were obtained in combination with the statistics on "Investments by Dutch households in securities".
Value of emerging market investments shrinks due to price losses after peak in 2021
During the COVID-19 pandemic outbreak in the first quarter of 2020, Dutch households' invested assets in emerging markets declined sharply, by 32% quarter-on-quarter. In the further course of 2020, emerging markets picked up quickly and in 2021, holdings gradually increased to a peak of €2,631 million in December 2021. This increase in household securities holdings in emerging markets was largely due to rising prices during 2020 and 2021.
In 2022, the position dropped to €2,241 million, about 2% of the total securities holdings of Dutch households (see Box 2). Including net inflows and foreign exchange gains, the loss came to €522 million (20%, year-on-year). This loss is greater than the negative return (in euro) on the MSCI Emerging Markets Index over 2022 (16%), and of total household securities holdings, which fell by 15% in 2022.
Box 2: Increase in value of household investments in the fourth quarter of 2022
After steep losses throughout 2022, Dutch households saw the value of their total investments rise in the last quarter of the year. Overall, the increase in value was €4.1 billion (+2% quarter-on-quarter), to €156.5 billion. For the whole of 2022, the volume of investments decreased by €26.1 billion (-15%).
Equity holdings in South Africa, China and Brazil take the lead
Within the emerging markets equity portfolio, the largest exposures are to three of the five BRICS countries. South Africa takes the lead within this group, mainly through positions in the Naspers media conglomerate. Next is China, including Hong Kong, through large investments in BOE Varitronix, Dickson Concepts, A-Living Services and BYD Company, among others. In Brazil, the holdings are also relatively large due to investments in the Petroleo Brasileiro oil group and mining company Vale.