Potential in Emerging Markets - at least in the long run

Asset managers see huge chances in emerging markets if investors are not distracted by short-term developments. A look at the past months shows, that an active management can be advantageous.

Please find emerging market funds in altii’s product area.

According to the latest ifund research news from August 2015, 76 percent of asset managers focussing on emerging markets have outperformed their benchmarks in July net of fees. Looking at the past three months, 75 percent have been capable of doing so. This clearly demonstrates the advantage of expertise and active selection when investing in emerging markets.

In general, asset managers see huge opportunities in emerging markets. Time Love, manager of the JB Emerging Equity Fund at GAM, says that they believe emerging markets to double within the next three years. In a market statement, he says the currently low price-earning ratio of 11.5, the current underrepresentation of emerging markets in portfolios and indices despite the high percentage of emerging markets in global GDP as well as rising interest rates in the US are contributing to this possible development.

Lately, especially the depreciation of the Chinese Renminbi had an impact on markets. Vontobel Asset Management expects that emerging markets currencies will depreciate further. Emerging market shares and bonds traded in local currencies should therefore be underweighted, says Christophe Bernard, chief strategist of Vontobel Asset Management.
ETF Securities sees the Peoples Bank of China more positive. “The significant policy change was to set the new Renminbi fixing rate at the previous day’s closing spot CNY rate. The PBOC’s move allows greater exchange rate flexibility and transparency of CNY pricing in its ongoing reform of the Renminbi and was not intended to be a ‘currency war’. We feel it shows progress towards a more market determined rate and is beneficial for its IMF SDR aspirations,” says ETF Securities in their weekly market overview on altii.

Michael Lai from GAM expects that China will be a profitable investment opportunity in the long term as the Chinese government is willing to generate growth by financial and structural reforms despite making some political mistakes.
For India, Madhav Bhaktuly, also GAM, sees enormous chances in many markets and sectors. But again, only in the long term. Investors must be willing to ignore short-term events and monsoon rain, increasing interest rate and politics.

For Fidelity Worldwide Investments, Corporate Governance is especially important. Nick Price, fund manager of the Fidelity Emerging Europe, Middle East and Africa (EMEA), says that “many investors are concentrating on short term news and act accordingly. This is the wrong approach. Finally, everything depends on a balance sheet analysis. My approach is thus, to focus on long-term and sustainable profitability of corporations.”