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The report, Global challenges in asset management: Emerging markets shift gears, sponsored by Malaysia’s Islamic Finance Marketplace, is based on two webinar events with investment experts. It finds that asset managers are deploying both passive and active investment strategies and differentiating between emerging markets in search of higher risk-adjusted returns.

In an exclusive interview with the EIU, Mark Mobius, executive chairman, Templeton Emerging Markets Group, said that he is currently focused on opportunities in China, India and frontier markets. He cautioned against using exchange-traded funds (ETFs) to access opportunities in frontier markets, because it will be difficult for them to replicate an underlying index without causing an unwanted market impact. “Going into frontiers with ETFs would be a dicey and risky adventure,” Mr Mobius said.

Investors are moving away from blanket strategies that treat emerging markets as a single bloc, the report says. For instance, more investors are investing in emerging markets using single-country ETFs, and looking more closely at which developing markets are more susceptible to changes in monetary policies in advanced economies.

Local currency bond markets suffered last year on fears of Federal Reserve tapering, but they have seen a turnaround in 2014. Their resilience has been generally seen by fund managers as a sign of the market’s growing maturity, though local debt markets have areas in need of improvement. “There are aspects of these markets that have to be developed further, in terms of risk management tools, the interest rate swap market, the currency swap markets,” said Ahmad Najib Nazlan, executive director, Amundi Islamic Malaysia.