Fund man­agers still gung ho over emerg­ing mar­kets

The Pak Banker - - COMPANIES/BOSS -

The ruc­tions in emerg­ing mar­kets have been painful for ex­change traded fund com­pa­nies with prod­ucts heav­ily ex­posed to th­ese re­gions, but the ac­tive as­set man­age­ment in­dus­try has not been im­mune ei­ther. Franklin Tem­ple­ton, Aberdeen As­set Man­age­ment and Ash­more are among the heav­i­est ca­su­al­ties of the emerg­ing mar­ket rout, with all three ac­tive fund houses suf­fer­ing big dips in their share prices in 2015 and sub­stan­tial out­flows from in­vestors. But some of th­ese ac­tive fund man­agers have been a lot more vo­cal than their pas­sive coun­ter­parts in their at­tempts to con­vince in­vestors that the sit­u­a­tion will start to im­prove.

Their mes­sage of op­ti­mism goes as fol­lows: equity val­u­a­tions in emerg­ing economies are so low they are be­gin­ning to look ap­peal­ing; de­vel­oped mar­ket in­vestors have over­re­acted to prob­lems in China that they do not com­pre­hend; and in­vestors risk miss­ing hand­some re­turns from an emerg­ing mar­ket re­cov­ery if they con­tinue to avoid th­ese re­gions.

For ex­am­ple, Jan Dehn, head of re­search at Ash­more Group, is one of the loud­est ad­vo­cates of the emerg­ing mar­ket re­bound story. "Mar­kets are mas­sively overreacting at a global level as far as emerg­ing mar­kets [are] con­cerned," he says. "In­vestors and the me­dia are pay­ing far too much at­ten­tion to the lat­est price move­ments and far too lit­tle at­ten­tion to fun­da­men­tals. The [hid­den] bod­ies are not buried in emerg­ing mar­kets, they are buried in de­vel­oped mar­kets.

"De­vel­oped mar­kets have had a great run on the back of [quan­ti­ta­tive eas­ing] pur­chases," Dehn says, but adds that th­ese coun­tries have not car­ried out sig­nif­i­cant eco­nomic re­forms or delever­ag­ing. "The op­po­site is true for emerg­ing mar­kets, so this is where I see clear value." Mark Mo­bius, Franklin Tem­ple­ton fund man­ager, also said at the start of the year: "We are not ter­ri­bly con­cerned about growth in China, nor its long-term in­vest­ment prospects. We would dub 2016 pro­jec­tions of 6 per cent GDP growth [in China] as quite strong given the size of the econ­omy has grown tremen­dously in dol­lar terms.

"This is an­other as­pect we think many in­vestors may be miss- ing when they see growth slow­ing. The fun­da­men­tals in China are still ex­cel­lent." Al­though such com­ments may ap­pear self­in­ter­ested, even ac­tive fund com­pa­nies that do not have a strong foothold in emerg­ing mar­kets are show­ing signs of op­ti­mism.

Ed­ward Bon­ham-Carter, vice-chair­man of Jupiter, a UK-listed as­set man­ager that fo­cuses on UK and Euro­pean eq­ui­ties, says his com­pany wants to add to its emerg­ing mar­ket ex­per­tise. "On a 10- to 20-year view, do we think emerg­ing mar­kets are go­ing to be a big­ger part of world economies and stock mar­ket indices? Yes. And we've been light in this area in terms of ex­per­tise and there­fore as­sets, so we're build­ing it up," he says.

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