Emerging market equities are trading on a 35% discount relative to history and look set to outperf...
Emerging market equities are trading on a 35% discount relative to history and look set to outperform developed economies over the long-term, according to Kate Munday, head of global emerging markets at Barings.
Munday said emerging markets are currently trading on an average P/E of 11, compared to the norm of 14 seen over the past seven years.
She believes the fundamentals are in place for the sector to outperform, while other external factors, such as the weakening US dollar, make the case stronger.
Speaking at the Investment Week Markets Forum, she noted: 'We believe the US dollar will continue weakening steadily. As a pegged currency, China's renminbi will follow suit and make the country's manufacturing sector even more competitive.'
Philip Ehrmann, head of emerging markets at Gartmore, said emerging market economies have benefited from low interest rates but will outperform even when rates start their inevitable climb, as cyclical growth combines with the secular growth already being enjoyed by the region.
He added: 'Declining interest rates have generally been good but emerging markets continue to perform well even when rates are rising, benefiting from strong global growth and increased demand for exports.
'This is a rare opportunity in which cyclical and secular growth are coming together. There are three main drivers: recovery of US growth, the growing importance of China and intra-regional trading, and Japan turning around.'
This is, in part, attributable to aftershock following the second half of the 1990s, he said, a period characterised by political and economic crises across the whole emerging markets macrosm, which led to a period of introspection among emerging markets' economic policy writers, with positive results.
Ehrmann added: 'It has often been forced on them but there is now much more attention paid to fiscal discipline and there have been significant improvements in terms of corporate governance and creating shareholder value.'
Munday said the increased emphasis placed on standards of corporate governance is in part due to growing numbers of emerging market companies becoming part owned by multinationals.
She pointed to Polish bank TKO as an example. Since Italian bank Unicredito bought into TKO, it has increased its dividends and sold off underperforming non-core assets.
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