fund managers are cautious, favouring countries that are less hostile towards america
Fund managers are beginning to position their portfolios towards countries that will benefit from a US economic recovery.
The latest research by offshore fund research specialists Forsyth Partners shows stronger weightings towards countries in the Asia Pacific region as opposed to Latin America, which some managers believe is more severely impacted by higher levels of risk aversion.
Venkat Chidambaram, investment director and fund manager of the GAM Star Emerging Market ' US$ Class, said: 'We have a top-down view and favour countries less hostile to the US such as India, China and South Africa.'
Chidambaram said in India, where GAM has an overweight position, the economy is stable and he expects GDP growth to be around 5%-6%.
He recommends companies linked to consumer spending, such as food producers.
Similarly in China, where GAM has an overweight position, Chidambaram has chosen companies that are exposed to GDP growth. He favours motorway operation companies because more people are expected to use roads in the future as the economy picks up. He also recommends computer manufacturer Legend Holdings because this area has low penetration rates.
Nick Moakes, manager of the Merrill Lynch Emerging Markets fund, also favours Asian markets. He said: 'As a region, Asia will not be as adversely impacted as Latin America by the rise in risk aversion. External financing needs are generally low. The issue for the region in the aftermath of the events of 11 September is the impact upon global growth.
'Export to GDP ratios are high relative to elsewhere. A slowdown in global growth will impact the revenues of many companies in the region. On a regional basis, Asia marginally outperformed both Latin America and EMEA but all regions fell sharply.
'Of the major markets, China, Brazil, Taiwan and South Africa proved to be the worst performers. Malaysia, other Asian markets and the smaller markets in Latin America proved to be the most resilient.'
Moakes said the Chinese market performed extremely poorly over the past quarter with the market losing close to one third of its value. He gave the example of China Mobile, which represented more than 60% of the index but fell by 30% in August following the announcement of poor results.
In Malaysia, investors have been encouraged by signs that foreign currency reserves have stabilised, reducing the risk of devaluation, coupled with some evidence of corporate restructuring, said Moakes.
GAM is in the slow process of adding exposure to countries economically linked to the US, as Chidambaram said he is seeing signs of stabilisation in the US economy.
Countries that GAM has been adding to are South Korea and Mexico. For example, in South Korea, Chidambaram has added to his technology and engineering sector weightings.
He said that South Korea will benefit from the economic pick up in the US as exports regain strength and operational conditions improve in around 12 months time.
Moakes believes Mexico looks the most attractive country in the Latin America region. He expects it to achieve investment grade status in the medium term and, even if the current account deterioration exceeds current estimates, he feels the financing requirement should be achieved without too much difficulty.
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