Emerging market investors could see returns in excess of 50% this year, according to Jeff Chowdry, p...
Emerging market investors could see returns in excess of 50% this year, according to Jeff Chowdry, principal fund manager at Foreign & Colonial's emerging markets investment trust.
Chowdry believes the underperformance which has dogged the emerging sector is in the process of reversal, triggered by the long awaited fall in US interest rates.
He said: "Emerging markets are sensitive to US interest rates, many economies in the emerging bracket having high levels of government debt. A fall in US interest rates immediately reduces the burden on government coffers and usually precedes a recovery in the market."
Chowdry thinks the emerging sector is underowned by investors and undervalued. He said that as a result of current low ownership, a relatively small investment would have a significant effect on performance.
He said Brazil was in a strong position for the future, having recently cut interest rates as a result of low inflation.
He also favours Taiwan, which he thinks was oversold in 2000 due to political instability, which he believes has now passed, and Russia, which he thinks will perform well on the back of future Nasdaq performance.
Chowdry stressed that from an individual savings viewpoint, emerging markets were suitable for clients with a diversified portfolio, not as a core holding.
He said: "Emerging markets present a substantially higher risk to the investor but this isoff-set by the high reward which they offer when the markets go up."
Chowdry said falling short term interest rates, which he believes will be followed by a steepening of the yield curve, represent the initial stages of emerging markets most productive period of the global cycle.
He predicts the majority of the outperformance will take place over the course of the next 12 months. However, he felt emerging markets might continue to perform well, but more sedately, for up to three years.
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