EM fund managers

By Richard Samans, World Economic Forum

“Are emerging markets already mired in a ‘crisis’,” the FT asked this week. The word is starting to surface, it noted. Economic growth slowed, global demand slumped, and trade plateaued, in recent months and years.

But leading emerging markets (EMs) such as China, Brazil and South Africa can still avert a real crisis. To do so, they would do best to broaden their attention beyond traditional measures of GDP growth to specific drivers of social expectations. They may find a more diversified strategy for growth itself along the way.

While news reports recently zoom in on the currency, debt, and stock markets woes in emerging markets, EM governments may worry about popular discontent at home more. From the BRICS over to Chile and Turkey to Indonesia, governments as of late are grappling with demands for wider social inclusion. Read more

By 2017,the Asia-Pacific region will have three billion mobile connections. This kind of critical mass is turning digitally native emerging market companies into global powerhouses. China’s Alibaba has one of the biggest valuations in the world, and India’s Reliance Jio Infocomm is launching the largest 4G network in the world.

As online access, digital media consumption and online transactions explode, the opportunities for media and entertainment (M&E) companies seem irresistible. However, the reality is far more complex. Despite the significant potential, M&E companies need to go into emerging markets with their eyes wide open. Read more

By Pablo Cisilino, Stone Harbor Investment Partners

After two years of low returns and high volatility, investors are questioning the thesis that supports investing in local currency debt from emerging markets. Notwithstanding the current cyclical factors that, in the short term, seem to support the US dollar, we believe the main structural features that make most emerging markets and currencies an attractive investment destination are still in place.

Some of the most important factors include cleaner sovereign balance sheets and demographic profiles that favour younger workforces and growing populations. In our view, the re-pricing of the asset class over the last couple of years has created considerable value. Read more

“Buy when there’s blood in the streets,” Baron Rothschild once famously said. Applying that wisdom to emerging markets, Gavin Serkin names Nigeria as the most promising emerging market for the next decade. Is he right?

Looking for “the best place in the world to put your money”, Serkin, Emerging Markets editor-at-large at Bloomberg, traveled to 10 preselected emerging markets. Armed with ‘excel spread sheets’ and taking along emerging markets investors such as Mark Mobius, he visited Kenya, Myanmar, Romania, Argentina, Vietnam, Nigeria, Egypt, Saudi Arabia, Sri Lanka, and Ghana. The results of that emerging market Odyssey are in his book “Frontier”. Its conclusion is surprising: the world’s most promising emerging market is also one of the most violent. Read more

By Paul McNamara, GAM

Events in recent months have given rise to some of the best opportunities in emerging market (EM) currencies that we have seen for some time. Following the sharp fall in commodity prices in the fourth quarter of 2014, the currencies of a number of commodity producers struggled.

These developments appear to have triggered a broader sell-off in EM currencies, with those that should benefit from lower commodity prices, such as the Indian rupee, Turkish lira, Mexican peso and Polish zloty, weakening as well. We believe these moves provide the key opportunities for 2015. Read more

How much bang do fund managers give for their investors’ bucks? It’s a question that has provoked plenty of debate in the FT recently, prompted not least by the “scandalous index cloning epidemic” in which supposedly active managers charge high fees for simply following a benchmark.

EM investors are far from immune. So they may be interested to hear of a new service offered by Copley Fund Research, which tracks the performance of 100 of the biggest global emerging market equity funds, with a combined $265bn of assets under management. Read more

By Stuart Rae and John Lin, AllianceBernstein

Despite a slow start following its launch in November, the Shanghai-Hong Kong Stock Connect share trading scheme has significantly increased foreign access to China equities and created new investment opportunities. Two sub-sectors are particularly noteworthy for global investors; the food, beverage and tobacco segment and the household durables segment.

A key trend to watch in 2015 will be the likely increasing usage of Shanghai-Hong Kong Stock Connect. This important capital market reform was launched by the Chinese government last November to help increase the inflow of foreign capital to the Shanghai equity market, while also facilitating greater participation by mainland investors in Hong Kong-listed equities. Read more

Portfolio flows into emerging markets (EM) suffered their sharpest slump in December since the 2013 “taper tantrum” as the Russian currency crisis and sliding oil prices intensified risk aversion among both equity and debt investors, according to estimates by the Institute of International Finance (IIF), a global association of financial institutions.

The IIF’s EM Portfolio Flows Tracker, released on Tuesday, estimated total outflows from EM at $11.5bn during the month, with flows out of debt accounting for $7.8bn and flows out of equities reaching $3.7bn. The only EM area to register net inflows was emerging Asia, following foreign buying of Indian bonds and equity issuance throughout the region (see chart). Read more

Jorge MariscalBy Jorge Mariscal of UBS Wealth Management

Over the past 20 years, 700m people have been lifted out of poverty in developing economies. This new middle class should grow another 60 per cent by 2020, increasing total consumption from $8tn to $13.5tn a year.

As the income gap with developed world peers narrows and aspirational consumer values converge, the emerging market middle class will be able and willing to pay for better education, health, housing, and infrastructure. These ‘public’ industries represent the most dynamic areas of the developing world – the new emerging markets to watch in 2015 and beyond.

Mass transit in Asia is an excellent example. The number of Asians living in megacities with more than 10m residents will double by 2025, the UN predicts. Meanwhile, vehicle ownership is doubling every five years amid rising incomes, while sharply rising carbon emissions are reducing air quality. Read more

By Sergio Trigo Paz and Gerardo Rodriguez, BlackRock

Periodic phases of market volatility this year have brought back painful memories of emerging markets (EM) crises. Some of these crises – particularly those associated with US monetary policy tightening in 1994 and 1999 – caused significant damage to emerging economies and their asset prices.

But those difficulties brought a hidden blessing. The crises taught countries that their misfortunes were caused not so much by the actions of the US Federal Reserve as by the lack of policy buffers and financial flexibility in their home markets. This realisation has helped foster an improvement in the overall framework of EM macroeconomic policies. Read more

“If you see ten troubles coming down the road, you can be sure that nine will run into the ditch before they reach you.”

For about two weeks in late October, it seemed as if these optimistic words from Calvin Coolidge, the former US president, might have encapsulated the mindset of emerging market (EM) investors.

But the late October rally in EM financial assets has now stalled. Investors are relinquishing hopes that market troubles may turn out to be mere phantoms and focusing again on the very real problems coming their way. Four of the most intractable are set out below. Read more

By Michael Power, Investec Asset Management

“Are we nearly there yet?” Most of us have faced – and in our younger days probably asked – the same question. As with children on long car journeys, this question is also posed by investors who cannot wait for bear markets to be over.

Commodity investors – and recently this has expanded from the metals and coal complexes to include oils – are wondering aloud when their recent ordeal will all be over. The same can be said for investors in those commodity-rich countries, as they survey their currency-ravaged portfolios. And this phenomenon is not confined to emerging markets (EM) – investments in Australia, Canada and even Norway have suffered the same fate. Read more

Unhealthy lifestyles are spreading through emerging market (EM) economies as people adopt fast-food diets, work in stressful and sedentary jobs and contend with worsening pollution. These are unwelcome trends unless, perhaps, you happen to be an investor in EM healthcare stocks.

A proliferation in ailments, rising incomes and growing government support for healthcare in EM countries are bolstering the portfolios of Sectoral Asset Management, a fund company with about $3.5bn under management. In March this year, it publicly launched a fund invested solely in EM healthcare companies. Read more

How do you invest in emerging markets (EM) at a time when the wheels appear to be coming off the “Washington consensus” in several parts of the world?

This is the key challenge for Gary Greenberg, head of EM at Hermes Fund Managers. Like many investors, his basic long-term bet has been that developing countries would continue to implement free-market economic reforms over time. Read more

Mark Mobius, chairman Templeton Asset ManagementGuess what? Mark Mobius, chairman of Templeton Emerging Markets, is still an EM bull! He dismisses the 2013 taper tantrum as “overdone”, and says that the actual onset of tapering will prove ” not significant” to emerging markets as an asset class.

It may not come as a huge surprise to hear an EM perma-bull being bullish. But the often white-suited Mobius oversees around $50bn of assets, including Templeton’s $14bn Asian growth fund, making his views on the market worth hearing. Read more

To the growing list of ways for investors to play the emerging market growth story, add this: private debt funds.

Cordiant Capital, a Canada-based fund manager, is the latest to add to this small but growing sector with the launch of a $250m fund on Monday. Read more

Another bearish call on emerging markets, this time from Barclays.

The bank says that the “case for EM assets is becoming more challenging” as equities have disappointed while in fixed income expected returns have fallen and the risks have risen.

But don’t give up, says the bank in a report published this week. Look for opportunities in “idiosyncratic factors” in specific markets. Read more

Some anecdotal evidence on the mood among investors has come across our desks: a note from Benoit Anne of Société Générale entitled “EM investor survey: Investors are now extremely worried”.

Among the survey’s conclusions: “it is quite clear that the shorter-term bullish investor on GEM has virtually disappeared”. Read more

The inevitable has come to pass. There is mounting evidence that fund investors are moving ‘beyond Brics’, as a report in Monday’s FTfm reveals.

Equity funds invested in Brazil, Russia, India and China suffered net outflows of $581.4m in the last six months against inflows of $12.5bn to all emerging market equity funds, according to EPFR Global, the fund data provider. Read more

BearWhile emerging market bulls continue to fuel the EM equities rally train - last week shovelling $265m into EM equity funds – a growing number of bears are piling out, raising the question: has the rally run out of steam? The latest bear to emerge, Kenneth Fisher, says sentiment in the market has become “too ebullient, too sanguine”.

The billionaire investor and chief executive of  Fisher Investments has already put his money where his mouth is: his fund – which manages $44bn - sold over $1bn of its emerging market exchange traded fund stocks in the last quarter. Read more