Despite the recent increase in volatility, fund managers and analysts believe the growth prospects fo...
Philip Ehrmann, head of emerging equities at Gartmore Investment Management, says: "In recent weeks emerging equities have suffered from being viewed as a 'higher risk' asset class so were bundled in with risky Nasdaq holdings when investors decided to take a defensive stance and head for the relative safety of US blue chips."
However, managers say it is important to remember that over the longer-term developing regions will be the beneficiaries of accelerating global growth and low inflation. In light of this, managers say valuations look more compelling than ever.
Sam Mahtani, portfolio manager at Foreign & Colonial, says: "During the shake-out we have seen investors cutting their exposure to the perceived 'high-risk' assets."
He believes another factor is that the dominant telecoms, media, technology (TMT) theme in developed stock markets over the last 18 months was followed in emerging markets. He cites the technology sectors in India and Korea, and telecoms in Latin America.
"The run that developed markets have seen in this area was bound to spill over into the emerging arena. For example, a US portfolio manager who was bullish on AOL would realise they could buy the equivalent stock in Taiwan at a cheaper price."
Nevertheless, the correction in some areas of emerging markets has been almost welcome, restoring a more sensible base for valuations going forward, Mahtani believes.
"Some TMT stocks in emerging markets had run up a lot in the last six to 12 months. Across the emerging markets equity universe, stocks are now trading at an average price/ earnings ratio of 15x this year's earnings, which is cheap compared to developed markets."
He argues that despite the recent volatility the global economy is still growing strongly, led by the US and Europe. Strong growth in the developed economies has a knock-on effect and brings benefits for emerging economies and companies, because exports from emerging countries are in greater demand while at the same time inward investment increases.
Mahtani says. "We turned strongly positive on emerging markets about a year ago, feeling that the market shocks of 1997 and 1998 had passed and that the stage was set for recovery.
"The underlying factors that made us bullish are still there. Commodity prices have risen over the last 18 months, which has been and will continue to be positive for many of the developing markets."
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