Emerging markets are benefiting from the cut in interest rates by the Fed, as well as demand from th...
Emerging markets are benefiting from the cut in interest rates by the Fed, as well as demand from the US and Europe for their exports.
Jonathon Asante, fund manager for the Framlington Global Emerging Market Fund and the Maghreb Fund, says: "Israel has become one of the biggest markets in the Middle East, especially in the software area, because many companies are Nasdaq-listed and are exporting globally."
Asante's funds are, however, underweight in the software sector because of bad profit warnings from the US.
Chris Jenkins, director at Rothschild Asset Management (RAM) and manager of the global emerging markets team, is more optimistic and has an overweight position in the sector. He recommends software firm Mercury Interactive and believes there is strong demand for its product, which tests software systems.
Framlington has an overweight position in Israeli banks and Asante recommends Bank Hapoalim as it is lending more money, is restructuring well and is cheaply valued. On the economic front, Israel has beaten inflation and interest rates have come down. However, Asante believes exports will slow down in the first quarter due to political uncertainty in the country. Framlington is also interested in Egypt, although it does not invest in the country at present.
Asante says: "The situation in Egypt has changed. Previously the currency was devalued and the stock market was hammered because of high interest rates. Now that rates have come down stocks are cheap and we now see a case for Egypt."
In the Middle East, Framlington is keen on Commercial International Bank, Mobinil and Al-Ahram Beverages. Asante believes these firms have good management, are cheaply valued and have low penetration rates.
Jenkins says the Fed bringing down interest rates has started to take away some of the credit problems in Asia. In the second quarter, he expects to focus on manufacturing and outsourcing companies in North Asia as industrial demands pick up in the US and Europe.
RAM also has an overweight position in Brazil, which Jenkins describes as a country that has benefited from interest rate cuts and has a broad economy geared towards exports and global production. Jenkins favours telecoms, beverage stocks, oil and gas, and bank sectors.
RAM has an underweight position in South Africa, Asia and Africa, which Jenkins says are commodity-driven countries where inflation is falling.
Lower rates in the US should also provide a more favourable monetary environment in Mexico and Argentina, according to James McLellan, director of overseas equities at Clerical Medical. However, it may not be that simple.
McLellan says: "It may not be until well into the second quarter that the balance of economic news and earnings announcements hitting US markets is sufficiently positive to reduce volatility and allow upwards momentum to develop, so Latin American markets may struggle until mid year.
"Mexico is heavily dependent for growth on its exports to the US, and a hard landing could have harsh repercussions on the corporate sector and the whole economy."
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