Emerging market investing was one of 2016’s biggest trends. Money flowed back into these regions until reversing again after the election of Donald Trump.
As the year neared its end, Funds Europe held an emerging markets roundtable with firms including Ashmore, Aberdeen Asset Management and BNP Paribas Investment Partners.
Jan Dehn, head of research at Ashmore, said emerging markets showed an attractive mix of competitiveness and cheap valuations.
“What’s interesting about the situation in emerging markets right now is the real effect of exchange rates, which are back to the levels we last saw in 2003. This means competitiveness is back to those levels and asset prices are extremely cheap due to the asset allocation effect resulting from QE [quantitative easing],” he said.
Stephen Tong, senior equity product specialist at HSBC Global Asset Management, had another perspective on low valuations. He said these resulted from flat or declining profitability, much of it to do with the decline in commodity profits.
However, he added: “But commodities now seem to have stabilised, meaning we shouldn’t see profit headwinds, and with some economies re-accelerating in terms of industrial production and exports, it’s setting the stage for profit acceleration. This would normally lead to multiple expansion, which could underpin the rally and allow it to continue.”
Damian Bird, lead portfolio manager at LGM Investments, said: “The reasons for anyone to invest in emerging markets ten years ago are exactly the same reasons as they are today and will be ten years from now: it’s down to the fundamentals of long-term growth and other powerful factors that will not be derailed by short-term cyclical elements.”
Mark te Riele, of BNP Paribas IP, said emerging markets, particularly in Asia, were in much better shape than at the end of the last emerging market rally. There is less reliance on external debt, domestic economies are healthier, and economic development is more self-sustained, he said.
And Anthony Simond, investment manager at Aberdeen Asset Management, offered up some investments he found attractive. These included hard currency bonds, particularly issued by Argentina.
“We think that Argentina is coming in from the cold. It has very low levels of external debt and they have one of the best economic teams in Latin America and, probably, in all emerging markets,” he said.
The full emerging markets roundtable can be read here.
©2017 funds europe
