The past six months have been a time of soul searching, riding out the storm and, above all, focusing on the short term. And while it has certainly been the appropriate thing for pension funds to do, some in the industry believe that investors must not become blinkered to the fact that the world around them is undergoing some dramatic changes. In fact, it has been argued that a sizeable shift is about to take place between emerging and developed markets, and that investors need to position themselves to ensure that they are key players in this growth.

Michael Power, global strategist at Investec Asset Management, is convinced that what is happening in China at the moment is transforming the world and that emerging markets are where future growth will take place. He says that in 10 years’ time, emerging markets will have become bigger than the developed world and that investors need to start adapting to this new reality.

“We are on the edge of experiencing a great migration of capital out of the west and into the rest,” he says. “That is largely because prospects in the west in terms of investments are not looking particularly attractive, not even in the medium term. Emerging markets, in particular those that have geared themselves in terms of growth profile towards Asia, are in a much better position looking forward. That is both compared with the west itself and those emerging markets that have tied themselves to the west.”

He believes that those countries will come out of the recession much quicker and points out that the massive outperformance of emerging markets over developed countries since the lows in November 2008 support this trend. So far, most global investment banks have already upgraded next years’ growth forecasts for China, which is the driving force behind the growth.

And there are signs that money is starting to return to emerging markets. This spring, flows into emerging markets were larger than into developed countries and much of the money that is currently being put back into equities is likely to be directed towards emerging rather than developed equity markets.

Fundamentally, Mr Power believes it is time that investors start to look at the world from a different perspective.

“If the investment world was a football team, the BRICs would still be playing in the second division, when they really should be in the first division,” he says. “There are also plenty of countries playing in the first that really should be in the second. China is still classified as a second division country, but that’s not where it should be. Within three years, it will have become the second largest economy in the world, overtaking Japan. Keeping China in the second division is bizarre. It’s as bizarre as Barcelona playing in the second division. It just doesn’t work like that.”

This view of the world is still largely reflected in the composition of indices, which Investec’s Mr Power refers to as “historical messiness”. “That has been carried forward and is still embedded in the MSCI,” he says. “They have a geographical challenge on their hands, which is becoming bigger and bigger by the day in terms of reflecting the world as it is – not how it was.”

Nordic investors are certainly no strangers to emerging market investments. One of the key trends in the Nordics before the financial crisis was very much an emerging market story, with investors ploughing money into the regions.

Jan Eggertsen, director of northern Europe business development at T. Rowe Price, describes the inflows into emerging markets as a result of a herd mentality, with everybody just following each other.

“A lot of them were going in with a belief in decoupling. Now, no one believes in decoupling, but that is wrong. It may not work when you have a year like 2008, but it will work over the long run,” he says.

There are, however, indications that optimism is returning. nrpn’s quarterly investor survey shows that investors are most positive about the prospects for emerging market equities over the next six months. Some pension funds even forecasted returns above 15 per cent. Almost a third of respondents also believed that emerging market equities was the most interesting equity class going forward.

Swedish life and pension company Länsförsäkringar has already repositioned its portfolio towards emerging markets equities. Its chief financial officer Gustav Kärner believes that a high proportion definitely makes sense and says almost half of its equity exposure is in Asia.

“As early as 2006, we had as much invested in Asia and emerging markets as in Sweden, about 30 per cent respectively. That was also the reason why we had such great returns in 2007,” he says.

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