UK investors could be missing out on some of the world’s strongest economic growth because the conventions of asset allocation have failed to keep pace with world changes, says Fidelity International.

Despite evidence suggesting that investors are inclined to allocate less than five per cent of their portfolio to emerging markets – traditionally seen as a highly volatile area of investment –these countries have actually nearly doubled their share of global GDP to 30 per cent in less than two decades.

China has climbed its way up the world league table of economic growth and is forecast by the International Monetary Fund (IMF) to be the third most important country in terms of GDP by the end of the year, behind Japan and the US.

Seven of the world’s 20 largest economies are now to be found in emerging markets, with Russia and Brazil also both in the top ten. Yet even the MSCI AC World Index, one of the most popular benchmarks for international equity portfolios, has only a 12 per cent exposure to emerging markets.

Peter Hicks, executive director for UK retail at Fidelity International, says investors may want to consider revising their asset allocation models in light of the growing economic significance of developing nations. ‘Now that China’s economy has overtaken that of the UK, Germany and France, it is difficult to ignore the emerging markets story. But the changing economic realities make it worth rethinking the traditional level of exposure investors have to these markets.

‘Obviously there are risks with investments in emerging markets – corporate governance standards are in some cases lower than in the West, and their equity markets can be as volatile as British banking shares – but over the longer term, the performance of stock markets tends to be correlated with economic performance. Isn’t it time for investors to raise their exposure to emerging markets from just 2.3 per cent? Matching the GDP figure of 30 per cent may be too much of a leap, but for more adventurous investors, a weighting of 10-20 per cent might be a more realistic reflection of these economies’ stature.’