Rea­son to cast a fresh eye at emerg­ing mar­kets

De­spite po­lit­i­cal noise, emerg­ing-mar­ket GDP growth is out­per­form­ing de­vel­oped mar­kets.

Finweek English Edition - - FUND FOCUS -

agen­eral no­tion ex­ists that emerg­ing mar­kets are not the place to be in the cur­rent lowre­turn en­vi­ron­ment, but that’s an ex­tremely mis­placed view, be­lieves Feroz Basa, Old Mu­tual Global Emerg­ing Mar­kets Fund Man­ager at Old Mu­tual In­vest­ment Group’s Global Emerg­ing Mar­kets bou­tique.

His fund with R1.6bn un­der man­age­ment gen­er­ated an an­nu­alised 24% last year in US dol­lar terms and an an­nu­alised 12.2% since in­cep­tion (Au­gust 2011) in rand terms. It’s cur­rently rated 7/197 on one-year per­for­mance in its in­ter­na­tional peer group; 10/172 on three years; and 40/139 on five years.

Rated a high-risk fund, it’s suited to in­vestors seek­ing high long-term cap­i­tal growth through ex­po­sure to many of the best com­pa­nies in emerg­ing mar­kets.

It has con­sis­tently out­per­formed its bench­mark (MSCI Emerg­ing Mar­ket NR In­dex) since in­cep­tion. The in­dex has re­flected an an­nu­alised 9% re­turn since 2000 and 2.49% on 10 years. The big­gest rise dur­ing the past six years was 18.22% (2012) and the big­gest draw­down 18.42% (2011).

A large num­ber of emerg­ing com­pa­nies is cur­rently at­trac­tively priced, have ex­cel­lent track records, and have shown the abil­ity to gen­er­ate strong re­turns in hard cur­rency terms, says Basa. They in­clude Sam­sung Elec­tron­ics, Tai­wan Semi­con­duc­tor, Sino Bio­phar­ma­ceu­ti­cal, Mag­nit and Tata Mo­tors.

“In fact, op­por­tu­nity emerges when as­sets are unloved. Emerg­ing-mar­ket val­u­a­tions have fallen to lev­els that en­tice in­vestors to care­fully con­sider the more favourable long-term prospects they of­fer. Cap­i­tal Eco­nom­ics fore­casts a re­bound in the Emerg­ing Mar­ket In­dex over the next two years, while eq­ui­ties in much of the de­vel­oped world will grind only slightly higher.”

Other forces may also in­flu­ence the mar­ket in the short term, he says, with im­prov­ing news out of China and the re­cov­ery in com­mod­ity Old Mu­tual Global Emerg­ing Mar­kets Fund Man­ager

Feroz Basa

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