Jpmorgan Global Emerging... Share Discussion Threads

[loganair] 02/1/2019 20:41

Avoid US stocks: Emerging markets is where to put your money in 2019, says Morgan Stanley: Stocks in emerging markets have had a rough year but are tipped for a turnaround, according to Morgan Stanley, which predicts stable growth in those economies in 2019. The investment bank has upgraded emerging market stocks from “underweight” to “overweight221; for the new year, while US equities were downgraded to “underweight.” “We think the bear market is mostly complete for EM (emerging markets),” the bank said in its Global Strategy Outlook report for 2019, adding: “We are taking larger relative positions and adding to EM.” Many investors withdrew from emerging markets throughout 2018 and bought more assets in the US due to a spike in bond yields. That will change, says Morgan Stanley, explaining that emerging markets will outperform developed markets. Within the emerging markets space, Morgan Stanley’s key “overweight221; countries are Brazil, Thailand, Indonesia, India, Peru and Poland. The bank classes Mexico, the Philippines, Colombia, Greece and the United Arab Emirates as “underweight.” Growth across EM has been forecast to slow slightly from 4.8 percent to 4.7 percent in 2019, before inching back up to 4.8 percent in 2020. US growth will moderate from the 2.9 percent estimates to 2.3 percent in 2019 and 1.9 percent in 2020, Morgan Stanley said. “A major challenge for US assets next year is that they’re ‘boxed in’ – better-than-expected growth will simply mean more Fed tightening, while weaker-than-expected growth will raise slowdown risks, with limited scope for policy support,” its strategists wrote. “In a major change from the last 10 years, both good news and bad news creates problems for US markets.”

[robsy2] 07/11/2018 07:22

This seems at a low ebb, had my eye on it for a while. I've bought a few . R2

[loganair] 26/12/2017 22:40

The improved performance of the emerging world will be sustained: At 3.9%, emerging -market growth in 2016 was the weakest since the Great Recession. Since then, the external environment for these economies has improved. In particular, growth in the developed world has picked up considerably and commodity prices have risen by more than 60% since the beginning of 2016. As a result, emerging -market growth rebounded to 4.8% in 2017. IHS Markit predicts this growth rate will be sustained in 2018. While the global environment will continue to be growth -supportive, and while some countries will see stronger growth in 2018, other countries and regions will face challenges, and growing debt burdens could become a risk for many of these economies. In Asia, India will recover from its twin policy shocks of demonetization and the imposition of the goods and services tax. At the same time Indonesia, Malaysia, the Philippines, and Vietnam will sustain 5.0‒6.5% growth. Most of the economies in Latin America will also see also better growth in 2018. A wildcard in the 2018 outlook is whether the Chinese government will go to the stimulus well once again when growth slows. Thanks to stable labor market conditions, it appears that financial crisis prevention outweighs a moderate growth slowdown, in the Xi government’s current calculus. A moderate weakening in China’s growth momentum in 2018 thus appears to be in the cards. IHS Markit predicts that China’s growth rate will diminish from 6.8% in 2017 to 6.5% in 2018. On the other hand, Emerging Europe will see slower growth, due to overheating and labor shortages. In the Middle East, the recovery from the oil slump will be slow and in Sub-Saharan Africa the big economies (Angola, Nigeria, and South Africa) will struggle to expand more 1%.

[loganair] 10/11/2017 09:43

Can emerging markets maintain their momentum? By Graham Smith: When markets surprise, they have a habit of doing so in a big way. This wasn’t supposed to be a great year for emerging markets but, so far, it has been. The MSCI Emerging Markets Index went up by almost a third in US dollar terms over the ten months to the end of October¹. Rising interest rates in the US have the potential to apply a substantial headwind to emerging markets. They make it relatively more attractive for global investors to plant their money in US assets and avoid the additional risks associated with smaller, developing countries. At the same time, higher US rates make it more expensive for nations dependent on foreign loans to service their existing debts and borrow more. As always though, we find ourselves somewhere between two big pulls. On the other end of the rope this time is economic growth. In a developed world where growth of 2% to 3% is considered strong enough to withstand rises in interest rates, the International Monetary Fund’s expectation that emerging markets will continue to grow at a rate of about 5% per annum looks impressive². So where is the growth coming from? For a start, China seems on course to expand by about 7% this year. While that’s a big step down from the 10% growth rate we saw earlier this decade, it’s still enough to belie some extraordinary progress. Online sales of physical goods were 29% higher in the nine months to September compared with the same period in 2016.³ That’s good news for the host of nearby countries that send exports to China. Malaysia, for instance, which sells components used in the latest generation Apple and Samsung smartphones, said last week that exports to China were up 27% year-on-year in September⁴. Then there’s Brazil, in a much weaker position, but with prospects improving. Following a damaging two-year-long recession, a rebound in consumer spending stabilised the economy in the first half of this year ⁵. India, almost the world’s fastest growing large economy in fiscal 2016-17, has slowed as the country absorbs the combined impacts of last year’s cancellation of high value bank notes and the introduction this year of a national goods and services tax. However, these effects are only expected to be transitory, turning positive for the economy longer run according to the World Bank⁶. Since corporate earnings have broadly grown in step with stock market gains this year, emerging markets continue to look attractively valued on a relative basis. At the end of last month, the MSCI Emerging Markets Index traded on 16 times the earnings of the companies it represents, and at a 23% discount to world markets generally. That valuation gap is more or less maintained when using forecast earnings – 13 times for emerging markets versus 17 times for the world⁷. You could, perhaps, explain away these mismatches by the risks that remain. Capital has continued to flow into emerging markets, even as US interest rates have gone up. As in the period 2003 to 2006, emerging markets are enduring rising rates, partly because those rises have coincided with healthy global growth⁸. However, that could still be undone by any factor that sees the US dollar returning to favour, particularly if that factor involves a rise in geopolitical stress or unexpected deterioration in the world growth outlook. That would place renewed pressure particularly on countries with US dollar currency pegs and large debts. Malaysia would be one – its banks are highly dependent on dollar funding⁹. As usual, investors seeking to add growth from emerging markets to their portfolios might do well to spread their risks. Fortunately, emerging markets are a heterogeneous mix, with commodity producers like Russia, Indonesia and South Africa included alongside the increasingly consumer oriented markets of China and India.

[davebowler] 06/10/2017 14:04

UEM has better NAV performance over 5 years and only a slightly lower yield of 3% yet is on a discount to NAV of 10% (JEMI's is 0%).Even cheaper are the subscription shares UEMS -a backdoor way into the ordinaries at discount. See the UEM thread for background.

[loganair] 13/7/2017 19:29

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.

[loganair] 23/6/2017 11:28

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.”

[loganair] 16/6/2017 11:01

...............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%

[loganair] 14/6/2017 09:42

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.

[loganair] 05/6/2017 11:41

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.

[loganair] 02/6/2017 09:16

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.”

[loganair] 31/5/2017 10:25

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.

[loganair] 15/5/2017 11:34

................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%

[loganair] 15/5/2017 11:14

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.

[loganair] 24/3/2017 09:36

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.

[loganair] 16/2/2017 10:03

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.”

[loganair] 10/2/2017 09:20

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.

[loganair] 06/2/2017 10:45

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.’

[loganair] 02/2/2017 10:59

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."

[loganair] 25/11/2016 11:20

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.

[loganair] 07/10/2016 09:17

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.

[loganair] 27/9/2016 16:42

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.