Throughout the coronavirus crisis, Funds Europe presents some of the best market commentary from fund professionals. Today, Mark Asquith, a senior emerging market manager at Somerset Capital Management, says now could be a very attractive entry point for emerging market investing.
History has shown us that super normal returns can be made during this type of environment. Before the coronavirus hit, EM small and mid-caps were already trading on historically attractive valuations. So far this year EM smaller companies have fallen more than 30% in USD terms and markets like Brazil are down around 50%. Market dislocations of this magnitude happen rarely, perhaps once or twice in a generation, and have historically provided excellent entry points for investors.
The last down market of similar severity occurred during the financial crisis of 2008/9. From the lows of November 2008, EM small caps rose more than 150% is USD terms in a little over 12 months. Brazilian small caps rose around 300% over the same period and almost 500% within two years. No two bull or bear market is the same, but we could see similar moves from current levels over the next few years.
Given the continued uncertainty, it is clearly not out of the question for markets to sell off further from here but even accounting for this, on any reasonable time horizon we still see this as a very attractive entry point. Our team is currently fielding an unprecedented amount of buy recommendations from the analysts. At the same time, we believe almost every stock within the current portfolio deserves additional capital – the challenge is picking the best place to invest.
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