The fiscal reforms and oil prices have been helping balance Mexico's deficit
Fund managers have been focusing their global emerging markets portfolio on Latin America and China, according to the latest asset allocation research by Forsyth Partners.
The Cazenove Emerging Markets Fund, the Baring Global Emerging Markets Fund, the INVESCO GT Developing Markets Fund, and the INVESCO GT Global Emerging Markets Fund are overweight in Brazil and the GAM Emerging Markets Fund is overweight in Mexico.
Christopher Gentley, fund manager of the Cazenove Emerging Markets Fund, says: 'In Brazil, companies have been improving their profitability and valuations remain at low levels.'
The market is expected to bounce back in Brazil. Michael Kerley, who manages both the INVESCO GT Developing Markets Fund and the INVESCO GT Global Emerging Markets Fund, says: 'Brazil has been over sold and the currency is undervalued and we expect stocks to do well when the market returns.'
However, the GAM Emerging Markets Fund has an underweight position in Brazil and overweight in Mexico. Venkat Chidambaram, fund manager, says the Mexican currency is weak and may become a problem as the trade deficit is quite large. However, he says in Mexico the domestic environment is good.
Chidambaram adds: 'In Mexico, the fiscal reforms and oil prices have been helping the balance deficit. We have chosen defensive sectors such as banks because they are restructuring.'
Another area in which large overweight positions were found are in China and Hong Kong. This includes INVESCO GT Developing Markets Fund, INVESCO GT Global Emerging Markets Fund and the GAM Emerging Markets Fund.
Kerley explains the Chinese government reform program to float state-owned companies on the stock exchange in China has helped the markets. The reform has increased foreign investment and liquidity to the region. The domestic economy is growing in China by approximately 7%.
In Hong Kong, the banking industry has been helped by low interest rates.
However, in other countries in Asia, the situation is not so positive. The GAM Emerging Markets Fund has an underweight position in Korea.
Chidambaram says Korea's electronic industry remains affected by the US slowdown. He recommends the banking industry as stocks are trading on cheap multiples and there has been foreign interest in the sector.
Out of the EMEA countries South Africa is overweight in the Baring Global Emerging Markets Fund and the Cazenove Emerging Markets Fund. Gentley recommends South Africa because it has a stable currency, interest rates have fallen, and companies are restructuring.
He says: 'It is a good macro environment for South Africa and there are significantly new growth opportunities being pursued by consumer companies.'
However, Chidambaram disagrees: 'Most stocks are mining companies which we do not feel positive about. But the economy is growing at 3%, interest rates are coming down and domestic consumption is buoyant.'
In Eastern Europe, Russia has been performing well. The WestAM Global Emerging Markets Fund, the Deutsche Global Emerging Markets Fund and both the INVESCO GT Developing Markets Fund and the INVESCO GT Global Emerging Markets Fund have overweight positions in Russia.
Kerley says: 'Oil companies are trading at a discount and Russia now has political stability.'
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