Emerging markets are providing some attractive investment opportunities as the more developed market...
Emerging markets are providing some attractive investment opportunities as the more developed markets continue to underperform.
As the effects of the US interest rate cuts gradually begin to filter into emerging markets, fund managers are gently upping their weightings in the sector, looking to capture the resultant growth before it is factored into stock prices.
James Clunie, global equity manager at Aberdeen Asset Management, is overweight emerging markets, saying they are providing stronger growth potential at more attractive valuations.
The MCSI emerging markets free index has fallen 4.15% in sterling terms, compared to a fall of 7.31% in the FTSE 100.
There is a strong correlation between emerging market outperformance and a falling interest rate environment, Clunie says.
As the markets try to predict when the global economic recovery is likely to kick in, emerging markets tend to ride that expectation, following a quasi-cyclical behavioural model, Clunie adds.
He predominantly focuses on the more liquid large caps when investing in emerging markets, as he is looking to capture stocks that mirror the growth of the market, leaving the small and mid caps to his colleagues who run specialist emerging markets funds.
Neil Rogan, manager of Gartmore's Global Focus fund, is also overweight emerging markets on what he says is a one-year view.
Rogan believes the more developed markets will come back towards the end of the year to early next year.
'In the US, we are waiting for interest rate cuts to have an effect. The problem there is the lack of demand, particularly in technology, but we think the worst is nearly over,' Rogan notes.
Rogan is more bullish about Latin America than Asia, although attractive valuations can be found on a highly stock specific basis in Asia.
He says: 'I am overweight emerging markets from a global perspective. The rationale is that valuations are at unusually attractive levels. The interest rate cuts in the US and the further ones we think will happen will ultimately be helpful for the US consumer and the US stock market and consequently good for Latin America.
'In Asia, the markets are difficult, particularly in the technology field in Taiwan and Korea. There are a number of companies we are looking at on a medium to long-term basis, though.'
Rogan is leading with a top-down approach and is almost sector neutral in his weightings. Clunie is bullish about Brazil, believing valuations are attractive following recent dips in the market resulting from fears over weakness in the Argentinean currency.
'I quite like Brazil. The market and currency had fallen a lot out of Argentinean fears and the valuations are now very competitive,' Clunie said.
Petrobras, Petroleo Brasileiro is one of Clunie's main Brazilian holdings. The oil and petroleum company makes up just over 10% of the Brazilian market and is up 10.12% in local currency terms, year to 26 June.
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