We view the recent weakness in emerging markets as an interim correction and anticipate stronger per...
We view the recent weakness in emerging markets as an interim correction and anticipate stronger performance later this year.
Given robust OECD economic growth, we are overweight East Asia. These countries have the greatest exposure to world trade and will benefit from the trend towards outsourcing.
The wider macro picture for the Asia region is healthy. Currencies are stable, GDP growth and exports are strong and current accounts are in surplus.
The Korean market has continued to slide on concerns over the Investment Trust Companies and the future of the Hyundai Group. Strong exports and robust economic growth figures were not sufficient to improve market sentiment.
Korea's outlook remains positive despite fears over corporate debt levels. Our funds are well placed to benefit from the D-Ram cyclical recovery. We will maintain our overweight positions in Samsung Electronics and other electrical hardware manufacturers.
Taiwan also suffered from the global sell-off. Political factors exacerbated the market weakness, with China beginning military exercises near the Straits. We remain overweight Taiwan, favouring Taiwanese electronic components manufacturers and maintaining exposure to foundry companies such as TSMC.
Singapore also fell back last month. We continue to hold stocks such as Singapore Press, the newspaper publisher, which has benefited from telecoms and internet companies' strong advertising spend.
The Chinese market managed to buck the downward trend in May due in part to its planned entry into the WTO.
Latin American markets continued to head south in May. Underlying economic strength across the continent remains in place but of greater impact was the strong sell-off on the Nasdaq, which hit markets and investor confidence across the region.
In Latin America we are overweight Brazil, focusing on undervalued telecoms companies. By contrast, we are underweight Mexico and Argentina, given their vulnerability to higher US interest rates.
We continue to overweight Brazil due to attractive valuations, a strong macro picture and good liquidity. The telecoms sector is enjoying strong EBITDA growth.
The Mexican bolsa fell to a six-month low at the end of May despite the continuing positive macro environment. Mexico's dependence on the US economy for its exports was the main driver of share price weakness.
The Mexican market may remain weak due to political concerns and the potential slowdown of the US economy. As a result, we are looking to move to an underweight position.
Argentina also fell heavily in May whilst Chile's market bucked the trend due in part to the opening up of its markets to foreign investment. We are looking to add to our Chilean exposure.
Mike Kerley is a fund manager at Invesco Asset Management
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