Share Name Share Symbol Market Type Share ISIN Share Description
JP Morgan Global Emerging Markets Income LSE:JEMI London Ordinary Share GB00B5ZZY915 ORD 1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  +0.00p +0.00% 126.25p 125.50p 127.25p - - - 30,156 09:29:37
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Equity Investment Instruments 0.0 15.3 4.8 26.4 359.64

JP Morgan Global Emerging Market Share Discussion Threads

Showing 51 to 74 of 75 messages
Chat Pages: 3  2  1
Ian Cowie: I’m happy for Asia to climb ‘wall of worry’: City cynics say the six most expensive words in the English language are: ‘It will be different this time.’ That’s worth recalling when this month marks the 20th anniversary of the 1997 Asian crisis, where a domino effect saw currencies collapse across the region and stock market shocks reverberate around the world. For example, the Hang Seng Index in Hong Kong plunged 10% in one day that July and the S&P 500 index in New York slipped by 7% in a single trading session. Lest this seem a dreary tale about events far away and long ago, it’s wise to remember that China had not yet joined the World Trade Organisation back then but is now the second-biggest economy in the world, as measured by gross domestic product. In terms of purchasing power parity, China is already the largest economy in the world, according to the International Monetary Fund. Coming down from the macro to the personal, like many investors who have diversified away from Brexit Britain and shrinking sterling, I have substantial exposure to Asia through Henderson Far East Income (HFEL) and Schroder Oriental Income (SOI) – two investment trusts yielding 5.4% and 3.5% respectively – plus JPMorgan Global Emerging Markets Income (JEMI), which yields 4%. In addition to those attractive yields, all three have delivered decent total returns over the last five years since I began buying them; 76% at Henderson and 93% at Schroder with JPMorgan still somewhat under a cloud at 34%. The one-year figures are, respectively, 32%, 25% and 20%. Then there’s my biggest single shareholding in the region, Baillie Gifford Shin Nippon (BGS), an investment trust specialising in Japanese smaller companies. This yields zip but has delivered total returns of 113% during the three years since I invested and 19% over the last year. The bad news is that Asian economies are carrying bigger debt burdens now than they were in 1997. The good news is that less of it is denominated in dollars and most Asian countries enjoy bigger foreign reserve buffers today than 20 years ago. Other significant differences across the decades include the increasing importance of domestic consumption, with the vast populations of China and India offering more potential for growth than anywhere else in the world, and less reliance on low added-value exports. This switch in emphasis is evident in the asset allocation of my Asian trusts. For example, Henderson Far East Income and Schroder Oriental both feature Samsung Electronics – the South Korean giant and global rival to Apple in their top 10 holdings, alongside major stakes in – respectively –Bank of China and HSBC. JPMorgan Global Emerging Markets Income and Schroder Oriental both list Taiwan Semiconductor in their top 10. Looking to the future, after four or five years of falling commodity prices and corporate earnings downgrades in the region, both trends have recently reversed and some analysts forecast double-digit earnings growth in 2018. True, we have heard similar talk before but the performance figures above speak for themselves and the dividends pay investors to be patient. All things considered, I expect Asia’s bull market to continue to climb a wall of fear in the months ahead, rather than revisit the shocking plunge of July, 1997. History rarely repeats itself but, less comfortingly for those of us who are fully invested, it often rhymes.
Turkey is heading for a default: Emerging market stocks have rallied this year, but investors should be wary of getting over-enthusiastic, says Jonathan Compton in this week’s cover story. “Major sovereign defaults in emerging markets are as predictable as the seasons”, he says. They happen every couple of decades – which means that right now we’re overdue for another one. The last one was in Malaysia in 1997; the one before that was in Mexico in 1982. Jonathan’s in no doubt where the next one will begin: Turkey. His reasoning is sound enough: President Recep Tayyip Erdogan has all but come out and said that that is what he’s going to do. The trouble is that investors aren’t listening. But they should, says Jonathan. “Turkey matters”. In the late 1990s it was a market darling”, and for the last 40 years “its large, relatively stable economy has been a significant stabiliser in the region”. But now, it is “rapidly sinking into ever-darker waters, threatening contagion into other emerging markets.”
...............Fund Bench-Mark Deviation China...........20.0% 27.0% -7.6% Taiwan..........16.6% 12.2% 4.4% South Africa....12.4% 6.8% 5.6% Brazil...........6.7% 6.9% -0.2% Russia...........6.4% 3.4% 3.0% South Korea......5.8% 15.7% -9.9% Thailand.........5.8% 2.2% 3.6% Mexico...........5.7% 3.5% 2.2% Turkey...........3.7% 1.1% 2.6% Czech Republic...2.9% 0.2% 2.7% India............2.7% 8.8% -6.1% Chile............2.7% 1.2% 1.5% Hungary..........1.7% 0.3% 1.4% Indonesia........1.6% 2.5% -0.9% UAE..............1.4% 0.7% 0.7% Malaysia.........1.0% 2.4% -1.4% Saudi Arabia.....0.9% 0.0% 0.9% Poland...........0.0% 1.2% -1.2% Philippines......0.0% 1.2% -1.2% Qatar............0.0% 0.8% -0.8% Colombia.........0.0% 0.4% -0.4% Peru.............0.0% 0.4% -0.4% Greece...........0.0% 0.3% -0.3% Egypt............0.0% 0.1% -0.1% Cash.............2.0%
Why It’s Time to be Overweight in Re-Emerging Markets - by Rob Bush: In the romantic whirlwind of global investing, no lover, it seems, is more alternately courted and then spurned than the emerging markets (EM). At times, investors are besotted, showering the asset markets of developing nations with capital as their infatuation with higher yields and stronger growth blinds them to all faults. But, before we know it, there’s an indiscretion – a capital control here, a debt crisis there. The once beautiful prospect of a lifelong partnership dissolves as investors and markets part ways, in search of their next paramours. However, here at Deutsche Asset Management, we believe that the time is ripe for investors to rekindle their relationship with emerging markets. At our most recent Chief Investment Office (CIO) day, we moved to an overweight on the region and, fortunately, we allowed our heads to rule our hearts. Here are the main reasons why we think EM should again warrant your affection: Macro Stabilization – After a tough 2016 for one or two of the emerging markets, notably Brazil and Russia, we think that Gross domestic product (GDP) growth and commodity prices have stabilized. Indeed, when it comes to growth, China may even surprise on the upside with encouraging signs of improving industrial production, steady infrastructure spending, and a Yuan that has been remarkably stable since its jitters in the summer of 2015 and at the beginning of 2016. Export Pick Up – Although our view is that many emerging economies are actually a little less reliant on net exports than may generally be assumed, we nevertheless see outbound trade growing faster than imports in a number of the larger exporters, including Korea, Taiwan, Thailand and Russia. Earnings Growth – Our view is that earnings will likely grow at more than 10% over the course of the next year in the MSCI Emerging Markets Index, and that should help to drive our forecast for 1,000 in the benchmark by March 2018. Discounted Valuations – We wouldn’t categorize emerging market valuations as distressed but rather as attractive relative to the US. Even after a strong start to 2017, the current Price-to-earnings (PE) ratio of MSCI EM is around 15.1 versus 22.2 for MSCI USA Index, a discount of more than 30%. Monetary Policy – More emerging market central banks are loosening monetary policy than tightening. All things equal that ought to provide a boost to stocks by encouraging relatively underinvested local money to seek out riskier assets. Additionally, to the extent that lower rates in EM, coupled with a hiking The U.S. Federal Reserve (Fed), cause EM currencies to weaken that could provide a boost to corporate profitability. Furthermore, one of the classic risks that investors are concerned with in EM, that of too rapid a currency devaluation causing problems in meeting dollar liabilities, does not seem to have materialized post Trump’s election. Furthermore, these reasons aside, there are two more that we have blogged on before that we think are worth reiterating. The first is the surprisingly low volatility that emerging markets have exhibited over the last 16 years or so. Figure One shows the rolling one year volatility of the MSCI EM Hedged and USA equity indices. It certainly came as a surprise to us that the emerging markets index has actually been less risky than the US more than 75% of the time. We attribute this to the relatively low inter correlation of many of these markets. After all, the emerging market label includes a basket of some very disparate markets, which, though individually may be quite risky, apparently diversify well when pooled. The other potentially appealing feature is the relatively low correlation that the emerging markets have exhibited to U.S. stocks over time. The average of the rolling one year correlations between these markets over the same period was 0.42 and the highest that it ever climbed to was 0.62 during the latter part of the financial crisis. This, don’t forget, at a time when correlations across asset classes generally were spiking and investors were clamoring for diversifiers. So there you have it. Not perhaps, reasons enough to fall head over heels in love with emerging markets, but sufficient, we hope, to at least get your pulses racing.
Strong services sector data and firmer oil prices pushed emerging market equities to fresh two-year highs on Monday, but Qatar stocks and bonds sold off after four other Arab states accused it of supporting terrorism. MSCI's benchmark emerging equity index rose 0.3 percent after strong services sector data from key markets such as China, India and Russia. Away from the Middle East, emerging markets performed well, with gains across stock indices and currencies, helped by the positive data and the rise in oil prices. Softer than expected U.S. non-farm payrolls data on Friday has also tempered Federal Reserve rate hike bets, pushing the dollar to seven-month lows and in turn helping emerging currencies higher. China's yuan advanced after the central bank set its guidance at a near seven-month high and Chinese services sector activity expanded at the fastest pace in four months in May. Russian dollar-denominated stocks rose 0.8 percent and the rouble firmed 0.2 percent after Russian services activity maintained strong growth. Indian stocks also hit a fresh record high with India's services firms creating jobs at the fastest pace in nearly four years.
Can emerging markets keep up the pace? Emerging markets have dramatically upstaged developed markets over the past year, and Neptune’s emerging market range has outperformed across the board. Here, members of Neptune’s emerging market team discuss the outlook for the asset class. Emerging markets have significantly outperformed developed markets over the past year, and had their strongest Q1 since 2012 The asset class nevertheless remains cheap relative to developed markets, and on an absolute basis The earnings outlook for emerging markets has greatly improved, supported by improving corporate governance and political reform – though there is still work to be done The Neptune Emerging Markets, Neptune India, Neptune Russia & Greater Russia and Neptune Latin America funds are all comfortably ahead of their benchmarks over one and three year periods There have been a number of false dawns for emerging markets in recent years; hopes of an economic turnaround have too often been quickly snuffed out by commodity price drops or shifts in market sentiment. In our view, however, it is clear that emerging markets are in the early stages of a cyclical recovery. This time last year, CEO and fund manager Robin Geffen started increasing his exposure to emerging markets across his global funds for the first time since 2013. “People had completely written off emerging markets but that’s when I think things became interesting,” he said. “Valuations were low and remain so, but China was beginning to stabilise under more effective policy measures. The stabilisation of the Chinese economy was the bedrock of a complete turnaround in the opportunity set.” “So far the move into emerging markets has been positive, but we think there is plenty of room for upside from here in a number of different areas. What has been especially pleasing has been the stellar performance of our emerging market range over this period. The Neptune Emerging Markets, Neptune India, Neptune Latin America and Neptune Russia & Greater Russia funds are all well ahead of their benchmarks over the past year, and over three years as well.” Having languished under a deflationary environment, slower global growth and weak PMIs from their key importers, emerging markets rebounded last year as these trends began to reverse. Now we are seeing the effect of these headwinds turning into tailwinds. Emerging market equities have just had their strongest first quarter since 2012, PMIs have been increasingly strong and growth prospects are improving. Over the past 12 months, the MSCI Emerging Markets Index has returned 44.2%, compared to 30.4% from the MSCI World Index. Ewan Thompson, manager of the top performing Neptune Emerging Markets Fund, rotated his portfolio’s bias significantly in the wake of a changing economic climate last year. “The conditions which suited a quality-biased fund are now changing rapidly, which just goes to show how flexible you need to be when it comes to emerging markets. Having been firmly focused on defensive, domestic-driven stocks up until 2015, we rotated towards value last year. To us the backdrop is ideal for cyclicals; stabilising and increasing global growth, a Chinese ‘hard-landing’ off the table and commodity price rises driving inflation.” The Neptune Emerging Market Fund sits in the top decile of the IA Global Emerging Markets sector over one and three year periods, having returned 50.7% and 54.3% respectively. It is also comfortably ahead of the MSCI Emerging Market benchmark over this period. The valuation springboard: More broadly, despite the fact that earnings growth in emerging markets is forecast for 17-18% over the next year, Ewan notes that valuations remain at around the same level they were at last year. “With earnings upgrades coming through, we expect to see a rerating in equity markets. Emerging markets are still trading at a significant discount of around 30% to developed markets and to us this makes them look very good value indeed. The scale of the opportunity should not be underestimated by investors. Given the depth that valuations sunk to thanks to such a protracted period of underperformance, there is plenty of spring in the market. In our view, there is still plenty of upside from here.” An inflection point in earnings? Emerging market businesses were awkwardly positioned for a slowdown in global growth in 2010; they had binged on capacity expansion and were suddenly faced with an excess capacity hangover. Now, thanks to a broad capacity cutting program – particularly in the commodities sector – prices are stabilising. Chinese initiatives to steer the economy away from a ‘hard-landing’ by supporting the housing market have also increased demand for raw materials, iron ore in particular. This increase in stability, combined with strong earnings growth data, leaves emerging market stockpickers with an interesting opportunity set. Neptune India Fund manager Kunal Desai has been capitalising on this dynamic in India. “We have seen big moves across the emerging markets but the key to these returns becoming sustainable is the earnings recovery story, something we’ve been talking about in India in particular for a long time,” he said. “We are at an inflection point, where you are seeing demand picking up, using up this excess capacity, whilst companies are continuing to show balance sheet restraint. That’s the real cash flow sweet spot.” The Indian stockmarket, led by Narendra Modi’s reform agenda, has performed extremely well in recent years. The Neptune India Fund has managed to significantly outperform with a lower volatility, returning 88.3% over a three year period. Kunal believes certain parts of the market, particularly a number of large caps, are now fully valued, but sees plenty of room for upside in domestically focused mid-cap stocks. Learning from the past While the revival of emerging markets is certainly good news for active investors, this is not merely a valuation anomaly play. Five long years of low growth have forced these economies to employ longer-term strategic initiatives to improve their business climates. “You are seeing better corporate governance, the reducing of current account deficits and government reform programs across the board,” said Ewan. “The key overweights in the emerging market funds are in the economies that are pursuing pro-reform agendas, from Modi’s modernisation of India to Russia’s commitment to becoming a top 20 World Bank “Doing Business” economy by 2020.” The Neptune Russia & Greater Russia Fund continues to benefit from its significant exposure to ‘New Russia’, in contrast to the energy and materials biases of the benchmark. This has contributed to the Fund’s significant outperformance versus the MSCI Russia Large Cap Index over a one and three year period. While the Fund is less exposed to oil than the wider benchmark, the stabilisation of the oil price since the lows of early 2016 has been a big driver of the market over the past year. The current oil price is at something of a Goldilocks level for Russia. The rally through 2016 has reduced the stress on the budget, and the stronger ruble has helped anchor inflation, which should allow the Central Bank to continue to lower rates. We believe there is much more room for rates to come down in Russia than consensus, which in turn will boost economic growth above expectations. However, the government is very aware of the need to diversify the economy away from natural resources, and the oil price shock will help to drive reforms, which will again stimulate stronger economic growth in the medium term. As always, challenges remain: While the long-term growth prospects for emerging markets are attractive, the nature of the asset class means that investors always need to be wary of downside risks. Corporate governance and political reform have been a bright spot in emerging markets of late, but one area with less positive newsflow in recent days has been Brazil. Thomas Smith, manager of the Neptune Latin America Fund, acknowledges that a potential lawsuit against President Michel Temer is a setback, but says it is too early to tell what impact it will have beyond the immediate short term, and remains open to potential buying opportunities. “The move in the market after the news broke suggests investors are pricing in zero chance of further reforms. While these allegations are likely to delay the reform agenda, it remains a key priority for Temer, and we believe this will be the case for the new government should Temer leave,” said Thomas. “Political reform is widespread across Brazil and Argentina and both are better placed to withstand short term political turmoil than they have been in recent years – the fundamentals in Brazil are considerably stronger than during the 2015/16 sell-off. Inflation has been falling fast and consistently, external accounts are in great shape (12-month rolling trade surplus is the largest on record), the global scenario is more supportive, companies are less leveraged, the banking system is solid, and economic activity is no longer in free fall.” “Finally, the Ministry of Finance and the Central Bank are led by very capable, seasoned technocrats that have a strong sense of public responsibility and are not likely to immediately leave the government if Temer falls. The growth prospects for Latin America are very encouraging, but as with any emerging economy you have to be cognisant of the potential for short-term blips, that is why we focus on downside protection by maintaining a diversified portfolio.” Like all of the funds in Neptune’s emerging market range, the Neptune Latin America Fund has a significant focus on downside protection. The Fund protected Latin America investors from the worst of a difficult period between 2013 and early 2016, and yet has participated fully on the upside more recently. It is among the best performing Latin American focused funds in the IA Specialist sector over one, three and five years, and is ahead of the MSCI EM Latin America Index over all of these periods. Geffen finished: “We have a fantastic team of emerging market specialists at Neptune, and I’m confident they can continue to deliver strong outperformance to our clients. Emerging markets have had a really difficult time over the past five years or so, but the tide is turning in their favour once again. Not for a number of years have we seen an improving growth story happening simultaneously in the emerging and developed worlds. It’s a great backdrop for an asset class that is attractively valued.”
The World’s Biggest Bargain Is In Emerging Markets by Nicholas Vardy: Why Invest in Emerging Europe There are three reasons to invest in Emerging Europe. First, markets are cheap. Emerging Europe as a whole trades at a CAPE ratio of 8.3. That’s over a 40% discount to emerging markets as a whole. Or the emerging Europe CAPE ratio trades at a 73% discount to the S&P 500. An incredible five out of the top seven cheapest markets in the world, as measured by CAPE, are in emerging Europe (Russia, Czech, Turkey, Poland and Hungary). Drilling down even further, tiny Hungary boasts three of the top six cheapest stocks on the planet through the lens of CAPE. Second, investors hate emerging Europe. The thought of investing your hard-earned money in Russia or Turkey is unlikely to make you feel warm and fuzzy. From an investment standpoint, that’s a good thing. Third, the region’s stock markets are in an uptrend. What is to Be Done? The lesson is clear. Stock markets have their seasons. The U.S. stock market has been “in season” for the past decade. In contrast, global stock markets have been a terrible place to invest. I believe the seasons are now changing.
................Fund Bench Mark Deviation Taiwan..........18.1% 12.3% 5.8% China...........16.0% 27.0% -11.0% South Africa....11.7% 6.6% 5.1% Russia...........7.5% 3.8% 3.7% Brazil...........7.2% 7.6% -0.4% Thailand.........6.0% 2.3% 3.7% Mexico...........5.9% 3.7% 2.2% South Korea......5.6% 15.1% -9.5% Turkey...........4.1% 1.0% 3.1% Czech Republic...3.1% 0.2% 2.9% Chile............2.8% 1.2% 1.6% Indonesia........1.6% 2.5% -0.9% Hungary..........1.6% 0.3% 1.3% UAE..............1.4% 0.7% 0.7% India............1.0% 8.9% -7.9% Malaysia.........1.0% 2.4% -1.4% Saudi Arabia.....0.7% 0.0% 0.7% Poland...........0.0% 1.2% -1.2% Philippines......0.0% 1.2% -1.2% Qatar............0.0% 0.8% -0.8% Colombia.........0.0% 0.4% -0.4% Peru.............0.0% 0.4% -0.4% Greece...........0.0% 0.3% -0.3% Egypt............0.0% 0.1% -0.1% Cash.............4.7% Dividend total for the year 4.9p payable February, June, August and November Discount to Nav 2.76%
Emerging markets have returned to form - time to buy? After five difficult years, emerging markets have returned to form over the past 12 months. Over the past five years there were some $80 billion (£63 billion) of outflows from emerging market equities, and the average global investor went underweight in the sector, says Bernard Moody, co-chief investment officer at Aberdeen. Last year this trend reversed, and the asset class saw some $7-8 billion of inflows as currencies stabilised. Political factors have been influential in emerging market countries: the continuing fiscal and economic reforms of India’s prime minister, Narendra Modi, who is widely seen as pro-business, for example. Favourable developments have included China’s ostensible avoidance of a ‘hard’ economic landing and the impeachment in 2016 of Dilma Rousseff, then president of Brazil, which sent the Brazilian market soaring. Commodity prices have also rebounded. Compared with 12 months ago, emerging markets look a lot more attractive, says David Stubbs, global market strategist at JPMorgan. In 2015 commodity prices and emerging market currencies were falling, but the sector started to turn a corner in early 2016. Reassuringly, he points out that two-thirds of the MCSI Emerging Markets index now consists of consumer, finance and technology businesses, which are all promising sectors for future development. Stubbs says: ‘Given the growth story, investors should consider emerging markets for the long term. The upside for emerging market currencies is now much higher than the downside.’ The current accounts of the ‘fragile five’ (Turkey, Brazil, India, South Africa and Indonesia) – so named because of their large current account deficits, which mean they rely on external investments flowing across their borders – have improved. Omar Negyal, co-manager of JPMorgan Global Emerging Markets Income Trust, says: ‘The recovery currently underway in a number of emerging economies and the stability we foresee in China this year support expectations of a broad-based turnaround in emerging market fundamentals in the medium term.’ His sentiment is echoed by Carlos Hardenberg, lead portfolio manager at Templeton Emerging Markets investment trust, who says: ‘After more than three years of languishing at depressed levels, the earnings of emerging market firms are showing signs of recovery, and that is reflected in the attitudes of companies and their managements as well as firms’ financial data.’ Recounting a recent trip to Dubai where his team met a range of companies from Africa, the Middle East and other emerging markets, Hardenberg says: ‘[They] were far more confident and open in sharing their outlook for the next 12 to 24 months.’ He argues that after a relatively bleak period for emerging markets, it seems many factors that have historically attracted investors to these markets – including stronger earnings growth than developed markets, higher GDP growth and more attractive consumer trends – may be coming back into play. Evolving story Emerging markets are evolving and not just emerging, according to Hardenberg. The kinds of emerging market companies he currently invest in are a world away from the firms his team analysed a decade or two ago. Technology and digital businesses have established themselves much more firmly in the region. He says: ‘The emerging market corporate landscape in general has undergone a significant transformation from the often plain vanilla business models of the past, which tended to focus on infrastructure, telecommunications, classic banking models and commodity-related businesses, into a new generation of highly innovative companies that are moving into technology and much higher value-added production processes.’ He adds that some very strong global brands have originated in emerging market countries. Back in the late 1990s technology-oriented companies made up just around 3 per cent of the corporate universe represented by the MCSI Emerging Markets index. Hardenberg says: ‘Even six years ago, information technology firms represented less than 10 per cent of investable companies in the index.’ Much has changed since then. Today around a quarter of companies in the MSCI Emerging Markets index are IT companies, including hardware, software and component suppliers. While much of this activity is originating in Asia – including Taiwan, South Korea and increasingly China – similar development can be seen in Latin America, Central and Eastern Europe and even Africa. Hardenberg says the IT sector can be difficult to understand and value. Business models are rapidly changing as they adapt to the shifting demands of consumers and respond to new environmental regulations. Currently, he has identified opportunities among some larger companies, but he generally tends to favour medium-sized companies with potential to outgrow the market as a whole. Companies in emerging markets have evolved rapidly, but Hardenberg is adamant that the emerging markets asset class remains one in which active management continues to play an important role. He says: ‘Emerging markets tend to have their own business rules and regulations which affect companies. Firms differ greatly in their attitude towards minority investors, governance standards vary significantly, and local intricacies determine consumer trends and habits. We often need to develop fairly close relationships to gain a better understanding of business prospects and find successful management teams that respect the rules.’ Risk worth taking Global emerging market equities remain subject to external risk, says Moody. US president Donald Trump has talked about taking jobs back to the US – although markets have shaken that off, given that his election campaign promises are proving difficult to deliver. Traditionally, a strong dollar has also been bad for emerging markets, says Stubbs, ‘but it is now less of a red flag’. He adds that the dollar is strong, but emerging market equities have done fine anyway. Negyal is more cautious. He believes that ‘dollar strength and the direction of US trade and foreign policy under Trump’s administration remain the most important risks’. Trump’s policies pose more of a risk to some emerging market countries than others. Stubbs says exports to the US represent a low proportion of Brazilian and Indian GDP, for example, but Mexico is vulnerable if Trump’s proposed border controls come into play. US rate rises are another potential hazard. However, Moody believes they are likely to arrive slowly and remain modest, and they will only happen at all against a backdrop of a robust US economy. Moody adds: ‘Of course, there will always be political risks. North Korea is sending missiles in the direction of Japan; China’s party plenum is coming up later this year.’ But there are always risks, and those who invest in emerging market equities are paid a premium for taking those risks. Could Brexit derail emerging markets? It’s unlikely, according to Moody. The eurozone and the UK are important parts of the global economy, but their significance to emerging markets is not huge. ‘Are we going to buy fewer electronic gadgets from Korea and Taiwan because of Brexit? Probably not.’ JPM global Emerging Markets Income: This trust, managed by Omer Negyal, is underweight in Korea and China, and overweight in Taiwan and South Africa. It returned 6.1 per cent over the three months to 10 April, compared with a sector average of 6 per cent. Over one year it returned 43.8 per cent, compared with a sector average of 32 per cent. Over three years it returned 26.6 per cent, compared with a sector average of 24.4 per cent. The MSCI Emerging Markets index is heavily dominated by China, which makes up 27 per cent of the index. But many active managers are underweight in China compared with the index.Negyal is one. He says: ‘We typically don’t like investing in companies with state involvement, so we have no exposure to the large banks, for example. The other large part of the market to which we have no exposure consists of internet names such as Tencent, Alibaba and Baidu. These are good companies, but they pay little or no dividend (Tencent yields just 0.2 per cent).’ His fund is also underweight in South Korea, because of domestic companies’ governance issues. He says: ‘Korean businesses are typically family run and complicated, which often means shareholders and dividends are not on their priority lists. Korea is renowned for having one of the lowest payout ratios of any market globally.’ As always, the fund’s country and sector positions are the result of individual stock decisions. He adds that his fund’s long-term approach led him to invest into weakness in Brazil, Russia and South Africa in 2015, ‘and has also led us to increase our Mexican exposure during 2016. The Mexican peso weakened throughout the year, allowing us to build positions in quality companies (Walmart de Mexico and Fibra Uno) we believe offer strong income and growth potential.’ However, following the sharp decline of the market and currency after the US election result, the headwinds faced by quality businesses hurt the fund’s performance. He says: ‘Another laggard market, Turkey, has also provided attractively valued opportunities, so we have increased our overweight there a little, with oil refiner Tupras a recent addition.’ From a sector perspective, he favours telecoms and consumer companies, while he is less keen on industrials and energy.
By Maike Currie of Fidelity: Bull markets climb a wall of worry and blips along the way are normal. In equity markets, these types of corrections can in fact be quite healthy and a good time to scoop up investments at discounted prices. Key reason to believe the party isn’t over: emerging markets. After Trump’s election there was a lot of angst about the future of emerging markets - largely because of two reasons: trade and tapering. Many emerging markets are export driven economies reliant on global free trade. Many of these countries have built their wealth by supplying the huge appetite of the American consumer. Trump’s ‘Buy American’ rhetoric raised concerns over emerging markets vulnerability to American protectionism. The other big concern centred on a stronger dollar. With rising rates and the tapering of ultra-loose monetary policy likely to lead to a strengthening of the American currency, emerging markets with dollar denominated debts or those dependent on commodities, looked particularly vulnerable. But the opposite has played out. Since the Federal Reserve’s interest rate hike announcement, the US dollar has been weaker while the market has pressed the pause button on the merits of Trump’s reflationary promises. What does this tell us? Well, crucially that the power of central banks in developed markets to drive up asset prices is fading and that emerging markets aren’t nearly as worried about tightening monetary policy in the developed world than the once were (remember the tantrum emerging markets threw in 2013 just at the mention of the word ‘taper’)? . And here’s the rub: investors may be turning cautious, but they’re not shunning emerging markets, typically regarded as one of the most risky investment classes. In fact flows into emerging market funds are at their strongest on record, according to data from Morgan Stanley, while emerging market asset classes make up six of the 12 best performing asset classes so far this year. Moreover, as Ayesha Akbar, a portfolio manager in Fidelity’s multi asset team, highlights there are also a number of longer term structural factors which favour these regions. In most emerging markets, people have seen rising living standards over the past 20 years, whereas in the developed world many have witnessed stagnation. This alienation with many feeling shutout from the so-called establishment, has been a key driver behind the rise of populist parties across the world, and indeed the election of Donald Trump. Emerging markets can always make their economies more productive to boost growth but this solution is not always as readily available to developed economies. Not only is there less room for ‘catch-up growth’ but these types of reforms tend to be more politically difficult, with the potential to uproot the status quo. Even the most traditional area of emerging market risk – politics – is now seen as less of a threat with countries like China and India making good progress in promoting a more stable economic and political backdrop. Compare this to the political clouds hanging over the developed world - Trump, Brexit, European elections and even a second Scottish Referendum. As investors we like to think of the investment world as neatly split between ‘safe’ developed markets and ‘risky’ emerging markets - but perhaps now is the time to rethink this. Yes, Donald Trump remains an unknown quantity and this is why we have witnessed these recent market jitters. But if you take a more holistic and long term look at the world, and how it’s changing, it probably doesn’t matter that much.
Templeton Emerging Markets’ Carlos Hardenberg and Liontrust’s Patrick Cadell outline whether emerging markets look safer in 2017 than previous years: Emerging markets were the surprise package of 2016, struggling early on due to concerns over a potential slowdown in China before ending the year as one of the best performing sectors. While the election of Donald Trump as US president has led to concerns that the sector will fall back this year, Carlos Hardenberg, manager of the Templeton Emerging Markets trust, says developing economies are now in general more defensive and less vulnerable than they have been at any time in the past. Last year, the MSCI Emerging Markets index returned 32.61 per cent compared with 28.24 per cent from the MSCI World index – a proxy for developed markets. Despite the turnaround in fortunes many remain concerned that the emerging markets are a risky proposition that caught a tailwind of rising commodity prices and developed market uncertainty. However, Hardenberg says now is the time to buy into the emerging markets if previous market cycles are an indication to go by. “If you study the history of the markets in most cases the biggest opportunity to invest is when currencies come under stress and are oversold and surely last year was one of those periods,” he said. “Currencies in all emerging markets got sold down dramatically and markets overreacted in places like South Africa, Brazil, Russia and others. “Yes there has been a period of recovery but nevertheless we are still seeing that on a purchasing power model we still see that there is value in these emerging marks. “Some of the effects we have seen coming from the depreciation of local currencies and the economic adjustment as a reaction to a slowdown in the emerging markets there has been a good degree of import substitution and as a result of that the current accounts and the balances look much better than they used to.” As a result, he says emerging markets are “more defensive and less vulnerable” than they have ever been. The big argument against this, he says, is a rising US dollar, which increases the cost of dollar-denominated debt, however, the trust manager says this is less of a problem than it has been during previous crises. “I think it’s a fair statement to say that even if the dollar appreciates further – and while it is not appreciating right now that is the general expectation – the threat on emerging market economies is mitigated by the fact that current account balances look so much better than they used to.” As well as currency effects, he says higher earnings and lower debt have made companies much more attractive than in previous cycles. “The one that is quite well flagged and understood by investors but can’t be underestimated is the impact of lower debt. “The lower debt compared to the developed markets is not only very visible on the governments who have deleveraged but also on the corporate sector which has deleveraged significantly so the corporate balance sheets have a lot less in US dollar debt and they have used more local instruments, moved into more local currency debt which is a defensive measure. “But overall the debt hasn’t really increased very much so they used the good years to deleverage as if they were expecting more difficult times ahead. In comparison the developed markets look much more vulnerable.” As well as this, a rebound in commodity prices, which he says now sit at sustainable valuations have improved the prospects for the emerging markets. Commodity prices spiked during the financial crisis in 2008 and began rising again through to 2011 but since then have fallen back and particularly eased in 2014 and 2015. “If we look at some of the commodity prices – of course one of the reasons we had a crisis in the emerging markets was the very steep fall in commodity prices. “The important part of the message is that we would expect much less volatility from here as there was this phase where commodity prices were brought up by speculators and hedge funds and other market participants to levels that were unsustainable. “We see that right now the prices are much more reasonable and most importantly, these are prices where most emerging market companies are able to not only make a good margin but have a better ability to plan their business going forward.” However, not all are convinced, and Liontrust global equity fund manager Patrick Cadell says Donald Trump in particular could pose a big threat to the emerging markets. “There are a number of substantial risks that I do not believe are outwardly discounted in asset prices at the moment and there is a degree of investor complacency around these risks,” he said. He cites Mexico which has borne the brunt of Donald Trump’s protectionist call and Turkey, which is currently suffering from an acute dollar shortage and has had to increase interest rates significantly to stabilise the FX market, as examples of countries already affected by the new US president. One potential policy that could pose the biggest headache to emerging markets is the border adjustment tax. “Now as protectionist, nationalistic, disruptive and outright insane as a border adjustment tax is, it’s not even a Donald Trump idea. The border adjustment tax idea belongs to Paul Ryan and the Republican congress. They see it as a way to fund Trump’s tax cuts and infrastructure spend. “The impact would be – it would lead to a much stronger US dollar, it would lead to higher US interest rates and it would disadvantage countries and companies that export to the US.” However, as the bill is currently going through congress and will likely to take several months to pass, there is also one area concerning him immediately – foreign direct investment (FDI) “An area we are seeing an impact from Donald Trump in 2017 and it should be very worrying for investors is foreign direct investment. “FDI at its simplest is a company building a plant or making an acquisition in a foreign country. It is however the lifeblood of emerging markets. It was responsible for the Asian tigers in the 1990s and the commodity boom of the 2000s. “It is an incredibly important determinant of future GDP growth because FDI is how new manufacturing technologies and processes find their way to emerging markets. It boosts growth, it boosts productivity and it establishes the global supply chains that lead to future trade routes. “As a result if it is removed or reduced the potential GDP growth of a number of countries diminishes and we are seeing FDI delayed or cancelled due to Donald Trump. “We’ve seen companies postpone or cancel building plants in Mexico. We’re seeing electronic giants decide not to build their next electronics plant in Vietnam but actually in the USA. This is all very negative for emerging markets.”
Why investors should stick with emerging markets: Alex Wolf, senior emerging economist at Standard Life Investments, said the conditions which began the sector’s recovery last year are largely still intact. This comes despite investment veterans warning that Mr Trump’s policies could wipe out the healthy returns which emerging markets enjoyed last year. Yet across both commodity and manufacturing exporters, the upswing in activity has continued. Emerging market fund group Ashmore posted a huge 94 per cent rise in pre-tax profits last year, despite seeing outflows of $700m (£558m). Mr Wolf pointed out that manufacturing levels have improved in both India and across the ASEAN region last month, while Brazil’s trade and production data has been stronger than expected. Yet he said the biggest piece of the emerging market equation, China, does not post reliable data until after the Chinese New Year. “Although there is little to derail the EM recovery in the near term, the outlook remains highly uncertain,” he said, adding the factors that drove economic and market performance of the sector are now at risk of receding. Flows into emerging markets had previously been boosted by stronger-than-expected Chinese demand, stronger external demand from the US and Europe, a stable dollar and interest rate environment, and a rebound in the global tech cycle. “With industrial growth set to slow in China and the Fed continuing to hike rates, the supportive environment could begin to show cracks.” At the moment, conditions in emerging markets look positive, but the Standard Life economist said the biggest question is sustainability. “Potentially damaging US policies and an unclear Chinese industrial outlook leave emerging market growth hanging in the balance.” He also said investors seldom predict the outcomes of geopolitical events, or draw the correct conclusion for asset price movements. “This is not usually because of a lack of knowledge, but because they are attempting to delineate other people’s emotional reaction to an event that has not yet happened. “ He claimed the “only rational answer” is to focus on the long-term, pointing to Morningstar analysis which indicates that emerging markets have a positive yield and pay-out growth rate going forward.
Atradius reveals the worlds top emerging markets: Leading economists from trade credit insurer Atradius have released their assessment of the world’s top emerging markets of 2017.The new economic report reveals that India, Indonesia, Kenya, Côte d’Ivoire, Peru, Chile and Bulgaria are the global leading emerging market economies (EMEs) to watch. According to Atradius, these economies have been boosted by higher yields, reduced concern surrounding a hard landing of China’s GDP growth and a stabilisation of commodity prices. Despite mounting uncertainty in 2017, these markets are predicted to weather global volatility due to strong domestically-driven growth, favourable demographics and supportive policy. Each market is dominated by young, growing populations, marked by an expanding middle class which boosts consumption and increases demand for investment and imports.Meanwhile, policymaking in these EMEs is largely improving and these markets generally enjoy stable political and institutional conditions. Indonesia, Peru, India and Côte d’Ivoire particularly are undertaking business-friendly reforms. Best performing sectors: Food: New long-term opportunities can be found in Bulgaria thanks to rising demand and a fragmented food market. Meanwhile, Kenya and Peru are also experiencing increasing demand for imported food and beverages. Chemicals: India’s chemicals imports are growing substantially with a positive outlook as industrial activities grow. Higher industry and household demand is also rising in Bulgaria where 80 per cent of chemicals are imported. Construction: Demand for infrastructure and investment growth are fuelling opportunities in all of the top EMEs largely thanks to a variety of large government infrastructure projects. Retail: Good prospects and growth are forecast in the retail sector in Côte d’Ivoire, Chile and Peru. India anticipates a boost in rural incomes which will drive demand for consumer goods. Richard Reynolds, head of regional brokered sales at Atradius, says, ‘The combination of strong consumption, investment-led GDP growth, increasing populations and improving policymaking offer attractive opportunities within these emerging market economies. James Marchant, co-founder and CEO of Just Opened, says, ‘The experience economy is a global force, supported by a wealth of exciting and vibrant locations. It’s culturally curious consumers throughout the world who are drawn to locations such as these. With the EU amounting to 10% of the world’s population, it makes sense for British businesses to look beyond the continent for opportunities and new customers. ‘Asia for example has a huge population with a strong consumerist culture making it an ideal fit for many businesses, not just those working in the experience economy. Businesses therefore have a lot to gain by looking beyond the European horizon, particularly in terms of growth prospects.’
JPM Emerging Markets Income is lower-risk and more defensively oriented than other emerging market equity funds. Jason Broomer says: "The manager favours sustainable businesses that pay attractive yields or have strong dividend growth prospects. The fund is expected to be more resilient in falling markets."
Carlos Hardenberg portfolio manager of Templeton Emerging Markets Investment Trust: India's corporate governance has come a long way. The financial industry at large has generally recognised India as a model of good corporate governance in the emerging markets realm, and there has been a marked increase in transparency by many listed companies. China is the other behemoth of emerging markets. Its economy is undergoing a dramatic transformation from investment- to consumption-driven growth, and that is going to have tremendous implications for every part of its economy. China's economic transition, along with the incredible economic growth already experienced, has resulted in a much larger economy, and its influence today on even highly developed markets is immense. Cautious on China: In general today we are cautious on China and very selective in our stockpicking. We think the Chinese have the ability to manage their economy at this stage - they have a lot of resources and are managing their currency - but we are concerned about the banking sector in China. We are worried about the transparency of the banks, as some of the accounting numbers we are getting are questionable. We are also concerned about the shadow banking system. We think the Chinese will be able to handle that process, but that the adjustment phase will take some time. As we look back at the development of emerging markets over the past two decades, it's interesting too to consider the emerging markets of tomorrow. We expect many of these to come from the current crop of frontier markets, many of which are growing rapidly and quickly assimilating the latest technological advances, particularly in the areas of mobile finance and e-commerce. Generally, more youthful and growing populations mean consumer power is on the rise and the middle class is growing rapidly. However, these smaller markets are being ignored in general by global emerging market investors, partially because of liquidity problems there and partly because they are misunderstood. There is a lot of potential in Africa, but also in some of the smaller Asian countries. Reasons to be upbeat: Looking back over the past 21 years, we believe the welcoming of foreign capital and the trend towards privatisation have been key to the growth and development of emerging markets. We are conscious and concerned that in some countries there is evidence that those trends could be reversed, but we remain upbeat today about the potential emerging markets offer, for three main reasons: • Emerging markets in general have been growing three to five times faster than developed countries. Many frontier markets have seen even higher growth. • Emerging markets generally have greater foreign reserves than most developed countries. • Emerging markets' debt-to-gross domestic product ratios are generally much lower than those in developed markets. Put all these strengths together, and there is good reason to be optimistic about the future for emerging and frontier markets. We are confident their share of the global investable universe will continue to grow.
EMERGING MARKET RESILIENCE Objectively, EM economies are rapidly becoming the only 'normal' countries left on the planet, in the sense that they have regular business cycles, use conventional policies, have reasonable debt burdens, sensible asset price valuations and so forth. Moreover, EM countries have recently demonstrated considerable resilience. They have just come through a hurricane of headwinds - the start of the Fed hike cycle, the US dollar rally, the taper tantrum and falling commodity prices - without a major pickup in defaults. EM resilience is rooted in fundamentals that are quite simply much, much stronger than those in developed economies, in regard to debt levels, FX reserves, growth rates, demographics, the room to ease monetary policies and fiscal room. EM economies are reforming far more than developed economies, especially in the last few years. In short, the conditions of vulnerability that make Fed policy changes such an important risk in developed economies are simply not present in EM. EM asset prices have also become far less correlated with Fed fears. By contrast, sensitivity to Fed hikes in developed market bonds is not only higher but has been growing steadily since last year. This relationship alone ought to be a clincher for those who still struggle with the Fed hike question. But if that is not enough, remember that EM bonds also pay 6.26 per cent yield for the same duration that in the US pays just 1.26 pe cent and which in Germany pays -0.51 per cent.
Emerging markets recover, but now for the hard part by Michelle McGagh: Emerging markets have been strong performers this year, but now earnings need to improve, say investment trust managers. Emerging markets have only entered the first leg of a recovery and company earnings need to improve before a genuine turnaround can take hold. Emerging markets have had a rocky few years but investments trusts focused on the sector are among the best performers of 2016. Shares in these trusts have risen 31% on average since the start of the year. The outcome of the EU referendum in June provided a further boost to emerging market investments as the value of sterling fell, however, it is only just the start of the recovery. Carlos Hardenberg, manager of the Templeton Emerging Markets investment trust, said the ‘pendulum was swinging back’ in favour or emerging markets. Shares in the trust are up 42.8% this year, making up all the ground lost in a torrid 2015. Hardenberg took control the fund from veteran emerging market manager Mark Mobius last September. ‘The market always over reacts when the general consensus turns negative,’ said Hardenberg. ‘Share prices are more volatile than underlying earnings. We are seeing industrial production, as a measure of recovery, increasing in emerging markets...if you go country by country, there is a healthy degree of orders. ‘GDP growth is slowly improving and over the next two years markets like Russia and Brazil will see the biggest relative improvements.’ Omar Negyal, manager of the JPMorgan Global Emerging Markets Income trust, targets income rather than capital growth in his fund and said the real recovery in emerging markets will have begun when company earnings stabilise. ‘What we are seeing in emerging markets is the first leg of recovery,’ he said. ‘China is stabilising and there is an improvement in trade balances in emerging markets. For the second leg [of recovery] to come through, earnings have to start to improve. We are at the start of that,' he said. He said improved earnings would help the ‘rerating of high yield equities in the asset class’. China has been the main problem for emerging markets, with slowing growth dragging the sector down. Hardenberg holds 19% of his trust in the country. He said there were still concerns around housing and ‘over capacity in steel and cement that will have to be dealt with in future’. ‘The big negative for emerging markets is the overall impact of global uncertainty and demand and supply in commodity markets,’ said Hardenberg. Former chief economist at the International Monetary Fund Ken Rogoff has also warned of the threat China poses to the global economy due to its high levels of debt. He said there was ‘no question’ that ‘China is the greatest risk’. ‘China has been the engine of global growth,’ he said. ‘China has been really important. But China is going through a big political revolution. And I think the economy is slowing down much more than the official figures show,’ he said. However, the good news is that sentiment towards other emerging markets is becoming more positive and local emerging market currencies are ‘slowly recovery’ and companies are finally keeping ‘capital expenditure down and concentrating on cost management’, said Hardenberg. Emerging companies in mid and small cap - there are more opportunities there,’ said Hardenberg, adding that many tech companies - of which he has been a fan - were ‘leap-frogging’ more established businesses. In particular, Hardenberg said he looked for companies ‘that have sustainable business models in an area with a high barrier to entry’. ‘We are expecting that emerging markets will see a sideways development over the next 12 months and there is a clear risk from China...and there is some danger already priced in,’ he said. Although Asia is the largest geographic weighting in his trust, Hardenberg said he did not ‘have exposure to Chinese banks or insurance companies’ because of their poor asset quality and concerns the companies were ‘hiding how they are restructuring’. China is the concern for Negyal, whose trust has mounted a recovery almost as impressive as Templeton's this year, with the shares up 38.6%. ‘China is very important for emerging markets at a quarter of the asset class and for the rest of the emerging markets it is vital... because it drives the rest of the emerging markets via trade links,’ he said. ‘That’s commodity prices in Latin America or manufactured goods in the rest of Asia. There are very few emerging markets that are isolated from China. From an economic perspective, Latin America will benefit from stabilisation [in China].’ Also important for Negyal is for emerging markets ‘to re-enter growth territory’ to ensure companies can continue to pay dividends. ‘Emerging market dividends and earnings have been under pressure,’ he said. ‘The near term outlook for dividends is still a concern and it is something we want to be cautious about but in the mid and long-term growth opportunities can be seen as well,’ said Negyal.
Good article. Where is it from?
Is this turnaround time for emerging markets? by Graham Smith, Market Commentator: It isn’t the picture we had at the beginning of this year. Back then, emerging markets were reeling from heightened concerns about China’s economy and currency as well as a plunging oil price. After several years of poor performance, emerging markets were certainly not at the top of investors’ shortlists. How this summer has changed all that. A tide to lift all ships, borne of an increasingly sanguine view of US interest rates, better news out of China and a generally more stable performance from commodities, has manifested itself in a sizeable rally. Data out last week showed Chinese industrial output increased at a 6.3% annual rate in August while retail sales rose by 10.6%. Not bad for an economy still in the throes of a protracted readjustment process. Such things are important for the world’s commodity producing developing countries – from Brazil through South Africa to Russia – and arguably even a comfort to big energy consumers like India, that have no interest in a world where confidence has been shaken by too-low an oil price. In fact, confidence may have been the biggest winner this summer. The world recovered from June’s Brexit vote seemingly none the worse off – though these are early days – and expectations about US interest rates seem to have receded from multiple rises this year to perhaps one or none. Higher rates in the US are an anathema to emerging markets. If they lift the value of the US dollar, they also inflate the size of the dollar debts held by emerging market borrowers. Not only that, they encourage global investors looking for higher quality and lower risk returns to allocate more funds to US dollar assets like Treasuries. However, government bond markets are not what they used to be. With yields across great swathes of the bond universe negative and with prices falling in major markets like the US and Japan this summer, “safe” assets suddenly look less safe with unattractive income returns to boot. The latest available data suggests the return to emerging markets is on, with sales of European funds investing in emerging markets reportedly rising in July to its highest since 2013. Yet while the big picture today is of returning confidence and improved returns from formerly out-of-favour sectors like commodities, if ever there was an asset class suited to a bottom-up, stock-picking approach over the longer term, this has to be it. Underdeveloped markets with growth potential attract entrepreneurs keen to shake up incumbents or create new markets with ideas drawn from the west. Compared with the rest of the world, the principal asset emerging markets have on their side is their growth advantage. It could also be that, in recent years, investors have paid a bit too much attention to US monetary policy. That was the case certainly in 2013, when the so-called “taper tantrum” saw billions of dollars withdrawn from emerging markets. The last time US interest rates were rising though – in the period 2003 to 2006 – emerging markets were rising with them4. Admittedly, the world still had a seemingly relentless China growth story to go on back then. However, the implication is that, so long as rising interest rates coincide with healthy growth, they might not be quite as bad for emerging markets as our very recent experiences would suggest. Emerging markets may have enjoyed a positive summer, yet you might not know it from their valuations alone. The nice surprise in these days of valuations tending to the high end of their normal ranges for developed markets, is that emerging markets look attractively valued, especially in view of their expected growth rates. At the end of last month, the MSCI Emerging Markets Index traded at just 15 times the earnings of the companies it represents, and at a 25% discount to world markets generally. The valuation gap is more or less maintained when using forecast earnings – 12 times for emerging markets versus 16 times for the world. So investors today can buy into the long-term growth emerging markets provide for less than the price of slower growth in the west, the trade-off being the higher risks associated with countries with lower credit ratings and the likelihood of volatile episodes to test the nerves. Whether or not China devalues its currency again remains a particular possible catalyst to volatility. However, if the International Monetary Fund is right – it expects emerging markets to grow by about 4% to 5% every year for the next five years – then 2016 could turn out to have been an attractive entry point for long-term investors looking to supplement the growth profile of their portfolios.
Are emerging markets really in a “sweet spot”? Emerging markets were the greatest investment opportunity of the last decade, and arguably the most disappointing of the current one. The MSCI emerging markets index has now fallen in four out of the last five years, and dropped a thumping 14.92% in 2015. This is likely to excite the attentions of investors who like to dive into burnt-out sectors before they fire back into life and the bargains have all gone. It has certainly excited my attention, as has the 15% rise in the FT Trustnet global emerging market sector in the last three months. Fund managers are also jumping up and down, no doubt hoping the spotlight will start shining on this out-of-favour sector again. BlackRock reckons emerging markets are in a “sweet spot”. Should you sink your teeth in? Emerging market ETFs have attracted nearly $16bn this year to recoup 75% of their 2015 outflows, while short traders have been heading for the exits. Richard Turnill, global chief investment strategist at BlackRock, pins this on the weakening US dollar, a rebound in commodity prices and recovering Chinese economy. But he isn’t getting too excited, warning that emerging market valuations are no longer unambiguously cheap. Recent trends could reverse, Turnill adds, and a sustainable rebound would require evidence of structural reforms addressing excess debt, industrial overcapacity and low corporate profitability, particularly in China. This is the year that is: Other fund managers share his enthusiasm: Robin Geffen and James Dowey say that 2016 will be “remembered as the year you should have been buying emerging markets“. They warn that recent emerging market equities have seen several false dawns lately, with the sector surging at the start of 2015, only to be destroyed by the summer China crash. Today they favour China and Russia, and are steering clear of beleaguered Brazil. Many of today’s optimists appear to be pinning their hopes on the latest bout of Chinese stimulus, brushing over structural problems such as massive debt, huge surplus capacity, a housing bubble and very shadowy banking system. None of these problems have been solved and it may take another crash to do it. Emerging London stocks: That said, a Chinese and emerging markets recovery would be welcome news for oil and commodity stocks. It would also boost struggling FTSE 100 companies such as spirits giant Diageo, fashionista Burberry Group, emerging markets fund manager Aberdeen Asset Management, and Asia-focused banks HSBC Holdings and Standard Chartered. All have been punished by the emerging markets downturn but may benefit from a revival. Or you could try household goods giants Reckitt Benckiser Group and Unilever, which have shrugged off the downturn but may still cash in when emerging markets consumers are feeling richer again. There are signs of upward motion already, with Aberdeen up 26% in the last three months. Emerging markets have been in a sweet spot before, so let’s hope analysts aren’t over-sugaring this one.
by Daniel Grote - Turnaround for emerging markets? Will 2016 prove the year emerging markets finally recover? Stock markets in the developing world have been in the doldrums for three years now, and they have been the worst major market in which to hold your money over the last five. On the face of it, it’s difficult to see the signs of a recovery: the US has just begun raising interest rates, hiking the price of developing economies’ dollar debt and spurring investors to seek more secure returns in the world’s largest economy. But then, they are very cheap. Emerging markets trade on a price-earnings ratio, using projected 2016 earnings, barely in double figures, well below other global markets. ‘Emerging market valuations – in terms of price-to-book ratios – are relatively depressed versus history,’ said Ross Teverson, manager of the Jupiter Global Emerging Marketsfund. ‘At a time when valuations have been at or around these levels, strong long-term returns have often been available to investors willing to look beyond short-term headwinds.’ Nick Price, manager of the Fidelity Emerging Markets fund, pointed to depressed currencies and the subdued oil price as crucial to the plight of the sector. ‘2015 has already exhibited a high degree of currency depreciation of most emerging market currencies versus the US dollar,’ he said. ‘To this end, weaker emerging market currencies actually provide a tailwind for emerging market exporters. They make products and services derived from emerging economies more cost competitive, making them attractive in the face of hopefully improving demand as the global economy continues to recover.’ Exporters could also continue to benefit from the boost to global growth from a continuing low oil price, even though some oil-producing developing economies will continue to suffer. ‘Falls in commodity prices have not been bad for everyone,’ he said. ‘Take India, for example. As a net commodity importer, both the economy and the household have benefited from the impact of lower price inflation as the prices of fuel and food have fallen.’
30th November 2015 - Portfolio analysis by JP Morgan: The trust's share price and net asset value underperformed the benchmark. South Africa and Korea were the key detractors from performance. In Korea, our positions gave back some performance having performed well year to date. From our viewpoint, the fundamentals have not changed and we continue to see relatively positive dividend stocks in a low payout market. Brazilian positions generated positive performance, notably in banks and insurance. This was helped by the Brazilian real, which rallied against the US dollar. The currency looks the cheapest of the major currencies in our universe and so we are tilted towards adding, rather than subtracting, capital from that market. Positive contributors included the longstanding underweight in India and our positions in Taiwan. We added to South Africa during the weak performance, funded by completing our sale of Radiant, the Taiwanese electronics backlight unit producer, due to our concerns over the long-term durability of its cash flow and dividend.
Economists like Nouriel Roubini are warning that the emerging market economies still face a protected period of deleveraging and are vulnerable to adverse shifts in market sentiment. "The great emerging market debt binge of 2010-14 is over and the deleveraging process will continue in 2016," Roubini says. Among the emerging market economies, the BRICS – Brazil, Russia, Indonesia, China and South Africa – represented more than a quarter of the global economy in 2014, calculated on a purchasing power parity basis. China alone accounted for 16 per cent of world gross domestic product, while Russia and Brazil accounted for about 3 per cent each. "Reckoning with the aftermath of debt build-up – servicing the local and hard currency obligations amid more difficult financing conditions globally – will drag on growth, weaken currencies in the most affected countries and lead to debt/equity swaps, and scattered defaults." Even in China, where the government has the capacity to rescue the economy from a sharp correction, the process of deleveraging has the potential to be a drag on growth, particularly if the Chinese authorities limit the depreciation of the yuan. Economists say they might be constrained by fears of inflation, capital outflows, and the adverse effects of a lower exchange rate on the shift of resources from manufacturing to the services sector. They also might be sensitive to the effects of currency depreciation on American opinion in an election year. Brazil and Russia have been pushed into deep recessions: Brazil by falling commodity prices, weak macroeconomic management, declining competitiveness, corporate corruption and political scandal; and Russia by the collapse in oil prices and Western sanctions. Neither are in a good position to cope with the consequences of rising US interest rates. Indonesia and South Africa also are vulnerable because of low commodity prices and would be adversely affected by a reduction in the supply of foreign capital. South Africa, in particular, has been running large fiscal and current account deficits and has a rapidly rising public debt. Roubini also believes Turkey and Malaysia could come under pressure. "Even in our more benign scenario – no hard landing for China, stabilisation of commodity prices and smooth, gradual US Federal Reserve policy rate hikes – some emerging markets could still come under severe pressure, given macro imbalances, low policy credibility and political fragility," he says. The outlook for emerging economies is growing bleaker as the collapse in commodity prices weighs heavily on their outlook. Emerging markets have further to fall yet, highlighting that they are no longer the engines of global economic growth that they were once thought to be.
Prospects for Emerging Markets Aren’t as Bad as You’ve Heard: It’s obvious that emerging markets are facing severe headwinds. 2015 will be the fifth consecutive year of slowing economic growth. The days of break-neck growth in China are gone for good. Global volatility — coupled with strength of the U.S. economy — is making investors retreat to the safety of the U.S. dollar. A direct result has been depreciation in emerging market currencies. Since mid-2014, against the U.S. dollar, the Brazilian Real is down 42%, the Russian Ruble 46%, the Malaysian Ringgit 26%, and the South African Rand 22%. 2015 will be the first year since the 1980s to see capital outflows from the emerging markets exceed capital inflows. However, today’s events are not necessarily a good guide to longer-term trends. In analyzing the trajectory of emerging markets, it’s critical to look at the broader context in at least two ways. First, look at developments in the global economy. While the U.S. does remain very robust, the prospects for Europe and Japan are modest at best. Softer prices for oil and other commodities are a big boon to China and India, which together account for almost 40% of the world’s population. This means that, even in 2015, emerging markets will grow at twice the pace of developed markets. Even after factoring in currency depreciations, their share of the global economy continues to rise year after year. According to the IMF, in 2000 it stood at 21%. This year, it will be almost double — 40%. By 2020, it’ll be 44% and, by 2025, close to 50%. If you want growth, you have no choice but to engage with emerging markets. The other big reason for longer-term optimism lies in the major structural changes underway in emerging markets. The population is young. Africa is 10 years younger than the world average. India is nearly 20 years younger than Europe or Japan, and nearly 10 years younger than the U.S. This young population is becoming more literate, informed, ambitious, and entrepreneurial. It’s also more urban. By every measure, on every continent on earth (including sub-Saharan Africa), the quality of both governance and infrastructure is better than it was 10 years ago and getting better. To be sure, not every emerging market will flourish. But in the aggregate, they will account for half or more of the world economy in ten years. And, they’ll still be growing at 2-3x the pace of the developed markets.
Chat Pages: 3  2  1
Your Recent History
Gulf Keyst..
FTSE 100
UK Sterlin..
Stocks you've viewed will appear in this box, letting you easily return to quotes you've seen previously.

Register now to create your own custom streaming stock watchlist.

By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions

P:33 V: D:20170728 08:44:41