Emerging market economies are starting to pick up and domestic demand is increasing. Meanwhile, the e...
Meanwhile, the export markets are benefiting from the continued strength of the mature markets, the only question mark hanging over the fate of the US.
Euan Matheson, emerging markets specialist for Murray Johnstone, says: "If you think the slowdown in the US will be a soft landing, it is very positive for emerging markets."
The large differences in performance between the emerging markets has pushed investors to focus heavily on the top performers. Globally, the markets rose around 60% last year. The Turkish and Russian markets rose 200% in dollar terms, while some smaller markets, such as Colombia and Venezuela, dropped more than 10%.
"We are top-down investors, we pick countries first. We think that is important. The best performing stocks in the worst markets did not do as well as the worst performing stocks in the best markets," Matheson says.
He is currently positive on Argentina and Brazil in Latin America, India is the preferred Asian market and Russia and Hungary in East Europe.
The fear that a recovery in Latin America would lead again to rocketing inflation has not been realised. The positive point for Brazil and Argentina is the governments' attitude.
Matheson says: "The governments have taken the hard route of implementing the kind of policies we like to see, such as tightening fiscal policies and privatisation. This has attracted a lot of foreign investment, which has made these markets particularly liquid."
India is of interest primarily because of its software companies. There has been a secular strengthening of this sector and Indian software companies provide world-class outsourcing solutions for the mature markets.
In Latin America, Brazil, Argentina and Mexico constitute 90% of the market. In a global view, smaller countries are increasingly irrelevant. Indonesia, Thailand and the Philippines constitute less than 2% of the World Emerging Markets Index. Matheson can have a tracking error of up to 5% either way, so he can afford to completely pull out of a large proportion of his 30-country universe.
One major market that has lost favour is Greece. The market rose by 91% in 1998 and 65% last year, but it has now priced in the positive news, most of which was related to convergence with Europe.
Greece is the most expensive stock market in the world in terms of P/E ratios, according to Matheson. He feels it will be the next emerging market to join the ranks of mature markets, following the path taken by Portugal.
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