Despite continued problems in Argentina, Latin American equity markets have quietly posted relativel...
Despite continued problems in Argentina, Latin American equity markets have quietly posted relatively strong gains during the first quarter of 2002, reflecting the view that debt default and currency devaluation is not endemic in the region.
Emerging markets are looking good value, with much lower valuations and higher growth rates than developed markets.
Their current performance stems back to a series of financial crises in Asia (1997), Russia (1998) and Brazil (1999), which forced governments and corporations to toughen up, says Humphrey Carey, joint head of emerging markets at Foreign & Colonial.
'We now find ourselves in a situation where growth in emerging markets is superior to developing markets at a time when the valuation of emerging markets has reached a cyclical low,' he adds.
He anticipates a lot of portfolio inflows into emerging markets as investors realise their returns in the current environment justify the extra level of risk.
In Asia, he likes Korea and Taiwan, which he says have been helped by a recovery in technology. He also thinks China will come back into favour as a late play.
In Latin America, he is optimistic about Mexico's outlook ' it has been a direct beneficiary of US economic recovery and the domestic economy is in much better shape. Later in the year, he also expects Brazil to perform well.
'However, there is some political uncertainty at the moment as election candidates jostle for position for elections in October,' he says. 'We see enormous scope for interest rates to fall in Brazil and I think this will cause a surge in domestic liquidity into the stock market.'
He is heavily weighted in Russia, which he says has benefited from domestic reform and a high oil price. In South Africa the outlook for the domestic economy is not attractive because of rising interest rates, but commodity companies look a good investment, he adds.
Bernard Moody, portfolio manager for emerging market funds at Sarasin, believes emerging markets are on the verge of a strong rebound as the global economy picks up.
'Some disappointing recent performance in emerging markets has, in our view, much more to do with concerns about the health of the world economy and the bursting of the technology over-investment bubble rather than any fundamental problem in the emerging world,' he says. 'A real and widespread improvement in economic and corporate fundamentals has taken place but has yet to be reflected in the valuations of companies operating in the emerging world.'
Emerging economies and corporations have benefited from the turmoil of recent years by implementing sounder policies, he adds. And the general populace of many countries has become increasingly unwilling to accept corruption and mismanagement.
This trend has been seen in Indonesia, the Phillipines and Thailand, during the last year. In Mexico, the election of Vincente Fox ended a 70-year period of one-party rule.
China and Taiwan have joined the ranks of the World Trade Organisation and in Russia, Putin has made huge strides in rebuilding confidence in the economy, Moody notes
Markets helped by technology recovery.
Mexico benefits from US recovery.
Scope for interest rates to fall in Brazil.
Continued problems in Argentina.
Political uncertainty in Brazil.
Disappointing recent performance.
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