Investors should not treat emerging markets as a ‘safe haven' amid global uncertainty, says Aberdeen Asset Management.
Aberdeen says emerging markets, which recovered from the credit crisis faster than western economies thanks to high liquidity levels, could still suffer from a US downturn as countries such as China depend on US exports.
Andrew McMenigall, senior investment manager of global equities at Aberdeen, says a bubble burst in China will prove painful as valuations look increasingly stretched, with shares trading at 41 times earnings.
However, he highlights emerging markets have most of the world’s savings while the US and UK carry huge debt, and says he favours Hong Kong-listed companies as they have ‘superior quality’.
Meanwhile, Japanese equities have become lacklustre amid slow economic growth but McMenigall says “value opportunities will unfold as the economy emerges from its slumbers”.
He adds many US companies have begun to look more attractively valued relative to their international peers. Meanwhile, Europe and the UK have attractive equity valuations, given economic uncertainty and a lack of merger and acquisition activity.
Aberdeen also says rent rises will drive future property sector growth. It says fund managers will rely on rents for most of their returns as the fallout from the sub-prime mortgage crisis will restrict property price growth even further than previously expected.
Alessandro Bronda, head of investment strategy at Aberdeen Property Investors, says: “Instead, the market environment will favour active managers that employ a disciplined process and are more selective on both a regional and sector basis when investing in property.”
Overall, Bronda expects to see yields continually readjust to their higher debt cost and the economy to expand, with the exception of the finance sector.
He says Nordic countries have the highest gross domestic product growth forecasts for 2008 and highlights the office sector as particularly attractive.
However, in the rest of Europe workforces will shrink over the next 10 to 15 years, leading Aberdeen to favour the retail sector. He says it should generally benefit from strong consumer spending levels and positive rental growth prospects but the UK retail space will weaken due to overpricing, oversupply, and muted tenant demand.
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