Much scepticism still remains about investing in emerging markets following a turbulent time in the ...
Much scepticism still remains about investing in emerging markets following a turbulent time in the 1990s. But these issues are in the past and emerging markets have now come of age, according to Nick Timberlake, global head of emerging markets at HSBC Investments' Halbis Partners.
Emerging markets have had their fair share of troubles in the 1990s, not least the Asian financial crisis in 1997-1998, the Mexican devaluation in 1994 and the Russian default and LTCM in crises in 1998.
Timberlake said: "However, because governments in various emerging markets underwent various reforms, emerging market economic policies have greatly improved. This has resulted in high economic growth rates, sound fiscal policies, responsible monetary policy and improving institutions and fundamentals."
He is positive about future growth, partially because of the resource rich nature of emerging markets. Emerging markets have 78% of the land and 63% of the natural resources. There are also favourable demographics in these countries, with a lower proportion of the population above retirement age. Overall, these factors mean there is less reliance on global trends.
He said although global emerging markets are now four years into a bull phase, fundamentals and valuations remain supportive. "Global emerging markets have higher profitability, higher growth rates improving governance and lower valuations relative to developed market," he said.
Halbis Partners' favoured markets include China, Russia, Korea and Taiwan.
China offers robust economic growth momentum driven by private consumption and fixed asset investment. "Recent tightening measures should alleviate inflation concerns and bring the growth rate back to trend," Timberlake said.
His case for Russia is the favourable liquidity conditions and the fact that the oil price is likely to be maintained at current high levels. Meanwhile, the market's valuation is among the cheapest (P/E ratio of 10.9 times) in emerging markets.
On Korea, Timberlake said economic growth continues to surprise on the upside, driven by a secular recovery in private consumption post credit card crisis.
"There is strong earnings and growth momentum in domestic sectors and buoyant business and consumer confidence is fuelling healthy credit growth, well ahead of analysts' expectations," he added.
A positive view of the technology sector is driving Timberlake's favourable stance on Taiwan. He said following the sell off in June, tech sector valuations now look attractive. There is strong demand in many areas of the market.
However, Timberlake warned there are risks with investing in emerging markets. A global hard landing in oil prices or the US consumer would impact on emerging markets, as would event risks such as terrorism or bird flu. At a more specific level, a Chinese hard landing, political uncertainly or reluctance to introduce reforms would have a negative impact on growth. key points
Emerging markets come of age
Policies have vastly reformed
Less reliance on global trends
Halbis favours China, Russia, Korea and Taiwan
Taking the time to look
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