Asian emerging markets are looking more attractive than Latin American and EMEA regions, according...
Asian emerging markets are looking more attractive than Latin American and EMEA regions, according to Frederic de Merode, portfolio strategist at Fidelity Investments.
He says a tilt towards Asian emerging markets has been held since the third quarter last year and while some countries have become speculative with a high turnover in shares, such as Taiwan, this has not deterred Fidelity from favouring Asia.
'Fundamentals are good in the region and we continue to see good potential for growth, good value stocks can be found and the level of education is high compared to other emerging markets,' de Merode says.
Asian emerging markets also benefit from a more stable political climate than Latin American markets, he continues, and the spectre of more defaults on the part of Latin American governments prejudices him further against the region relative to Asia.
'Asia looks stronger than Latin America but let's not forget they too went through a debt crisis not too long ago.' This, he argues, has in the long run benefited the region as governments have learned from the mistakes made in the past and taken measures such as limiting the level of debt they are prepared to take on.
He favours any company with the potential to expand into China simply because of the size of the country and the huge growth potential there.
Obviously this puts companies with existing links to China in the frame although he cautions that some Western companies have stumbled in the Chinese market and others entering the market afterwards have been able to learn from mistakes. Joanne Irvine, emerging markets fund manager at Aberdeen Asset Managers, agrees and says although Hong Kong is a developed market it is top of Aberdeen's emerging markets list as it is used as a play on the Chinese market.
Aberdeen prefers to invest in Hong Kong companies with exposure to China, she explains, as they are more transparent than Chinese companies. China has huge potential and Hong Kong is ideally placed to exploit its links, she adds.
She too prefers Asian emerging markets over others and says Aberdeen is slightly overweight the region with EMEA underweight and Latin America neutral.
The underweight position on EMEA comes from an underweight position in South Africa. This skews the EMEA region to an underweight position, she says, despite a significant overweight position in central Europe. Long-term problems such as Aids and poor education standards have caused Aberdeen to take a long-term underweight position in South Afica.
This negative view, she adds, has been further strengthened with the leaking of government plans to redistribute mining wealth to black empowerment groups.
This could potentially lead to nationalisation of mining companies, she says, although the proposals the South African government is looking at will probably be watered down following negative investor sentiment towards the plans.
Chinese growth potential.
High education standards in Asia.
No debt defaults looming in Asia.
Continuing debt crisis in Latin America.
South African risk on mining shares.
Flood damage and slow German economy.
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