Tag Archives: emerging markets

Marcoeconomic Indicators Suggest Caution in Emerging Markets

Emerging markets (EM) are undergoing long-term shifts that are not favorable to EM equities, according to managers of EM funds. “Things have changed,” says the executive chairman of Franklin Templeton’s emerging-markets group, Mark Mobius. The more than 20% decline in such stocks does not make them a value, based on marcoeconomic indicators. Average expansion in EMs has fallen to below 5% (down from 8% in 2007), placing them just 2.5 percentage points above developed countries (the smallest difference since 2002).

Improvement in equities is not on the horizon. “We’re looking for a long, drawn-out period of subdued economic growth,” says Rashique Rahman, head of EM fixed income at Invesco. EM exports have also stopped growing, due to reduced demand resulting from the Chinese slowdown and subpar recovery in the U.S. and Europe. A report by the Bank of International Settlements identified a half-dozen big EMs with credit-to-GDP ratios associated with “serious banking strains.” EM governments and companies did not, by and large, prepare for slowdown. Chuck Knudsen, EM equity strategist with T. Rowe Price, says that average return on equity and capital has declined for each of the past four years.

There may be niches of value in EM equities. Knudsen points to insurance and food retail; Todd McClone, co-manager of the William Blair Emerging Markets Small Cap Growth fund, identifies pollution-control and alternative energy in China and mortgage lenders and private hospitals in India.

Fixed-income investment in EMs may fare better. Most EM governments appear to have learned fiscal discipline since the last major crisis nearly 20 years ago. Rahman of Invesco notes, “[o]ur base-case scenario is no sovereign defaults among mainstream countries.”

El-Erian: “Classic Overshoot” In EMs Will Hurt Now, Create Opportunities Later

Mohamed El-Erian says we are seeing a “classic overshoot” to the downside in emerging markets right now, which should lead to more pain in the near term but opportunity over the longer term.

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Arnott: “You Don’t Get Bargains In The Absence Of Fear”

Fundamental indexing guru Rob Arnott says that to get bargains, you have to invest in places where fears are high. Right now, he says that means to look in places like emerging markets and Europe.
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Herro Talks EMs, Interest Rates, and What Worries Him

Top fund manager David Herro thinks emerging-market stocks remain overpriced, but he thinks there is a way for investors to benefit from emerging market growth.

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Top Fund Manager On Emerging Market “Misnomers”

Justin Leverenz, whose developing market fund is one of the best performers in its class over the past five and ten years, says he thinks a number of inaccurate views are leading investors to stay away from emerging markets.
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Herro: EMs Still Too Pricey

David Herro has been one of the top fund managers in the world for over a decade, and he says emerging markets are looking overvalued even after recent declines.

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Mobius: EM Selloff Temporary

Templeton Asset Management’s Mark Mobius says he thinks the emerging market trouble that has seeped into the U.S. market a bit will be temporary, and will provide significant buying opportunities. Mobius tells CNBC that there’s “no good reason” for the EM declines, which appear to be the result of fears that money will flow out of EMs as the Federal Reserve tapers its quantitative easing program. He notes that emerging market central banks’ balance sheets in general remain far better than those of the U.S. and other developed markets. He does say that balance sheets of American corporations are very strong, and he expects to see a pick-up in U.S. capital spending, which he thinks will benefit emerging markets.

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