Managers are positive on emerg-ing markets and are favouring domestic stocks that will benefit from ...
Managers are positive on emerg-ing markets and are favouring domestic stocks that will benefit from higher consumer spending as the areas continue to develop.
Aberdeen, Focus Capital and Atlantis believe the sector is a domestic growth story, as econ-omies become more Western-ised and industrialised consum-ers have more money to spend.
One theme for Mark Gordon-James, investment manager of the Aberdeen Global Emerging Markets fund, is retailers. He says: "In the emerging mar-kets real wage growth is improv-ing, which is trickling down to lower income earners. Consum-ers are spending money in the retail area on quality brands and fashion items.
"In Mexico, we favour drinks group Coca-Cola Femsa because the company has a strong brand, which consumers like. The com-pany has a strong distribution network and sells in Mexico, Guatemala, Nicaragua, Costa Rica, Panama, Venezuela, Colom-bia, Brazil and Argentina."
James Alexander, marketing director of the Atlantis China fund, says China is a domestic consumption story.
He adds: "The economy is shifting from a low cost manu-facturing base to being driven by consumption. The disparity between the rich and the poor is shifting and consumers are spending on domestic goods."
The Atlantis fund is focused on small to mid-cap domestic stocks because they are under researched and there is more scope for price uplift than with well-known larger companies.
One such example in the Atlantis portfolio is medical device firm Shandong Weigao. Alexander believes, as the coun-try becomes wealthier and uses more sophisticated medical prod-ucts, this will be a growth area.
Another example is construc-tion group Baoye, which recently undertook a joint venture with Japanese firm Daiwa House to build homes in China.
Alexander says: "It is trading at a P/E of nine times earnings compared to the market average of 12 or 13. It is cheap because it is a small under-researched company, which investors are not that familiar with. It is likely to benefit from the construction boom in the country."
John Cleary, chief investment officer at Focus Capital, has a similar view. He says: "China has impressive growth, a young workforce and it is changing from a rural to a more industrial nation. The cost of labour is low and Western manufacturers have been setting up there because it is so much cheaper."
Cleary also believes India is compelling and has an over-weight strategy. He adds: "The country has a large demographic base, a young workforce and they are learning English, which helps with Western companies. We favour the biotech and soft-ware sectors because these have been given a boost by the private sector; they are run by entrepre-neurial management teams that have been performing well."
According to Gordon-James, the Indian market is also expe-riencing a consumer-led spend-ing boom and he is favouring banking stocks as a result. For example, he says ICICI Bank is gaining sales as consumers buy houses and take out mortgages and credit cards to buy goods.
One area he is cautious on is Russia. He is concerned many companies are not transparent and are controlled by the govern-ment, which may not act in the interest of shareholders.
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