EM bulls explain their top picks
SAO PAULO: You have to go back to 2004 for the last time emergingmarket stocks racked up a longer series of monthly gains. And bulls say the good times should keep going.
Mark Mobius of Templeton Emerging Markets Group and some other big money managers are finding reasons to buy. Although valuations are climbing, optimists say corporate earnings will improve as economic growth rebounds, supporting another leg-up for equities.
“Emerging-market stocks are still extremely attractive,” said Brian Wolahan, a senior portfolio manager at Acadian Asset Management in Boston, whose fund for developing-nation stocks topped 92% of its peers over the past year. He cites price-to-earnings ratios at a discount of more than 20% to developed markets, far below the 10-year average.
Stocks and currencies from developing nations are poised for their best year since 2009 as a drop in volatility with a relatively benign political and economic backdrop encourage bets. While some Wall Street veterans have warned that risky assets are overvalued, others are finding reasons to stay bullish as the benchmark index notches its eighth straight monthly advance and a 26% gain this year. Here’s what money managers had to say about the rally:
Alejo Czerwonko, EM strategist at UBS Wealth Management: “The strong year-to-date performance is justified as earnings have picked up 16% in US dollar terms during the same period.”
His firm is overweight on stocks in China, Indonesia, Thailand, Turkey and Russia, and underweight in Taiwan, Malaysia, the Philippines and South Africa. The main risks for the outlook are central banks becoming more hawkish, fresh geopolitical concerns and the sustainability of China’s growth outlook.
Mark Vincent, money manager at Standard Life Investments, says EM stocks are attractive as earnings rise, profit margins recover, consumer demand increases while inflation is under control and the dollar is weak.
He likes Russian and Korean stocks, Brazilian banks and Chinese internet-related companies. “We have been less bearish than the consensus in China.”
Rohit Chopra, portfolio manager at Lazard Asset Management: “We are seeing returns on equity in EM once again at a premium relative to developed markets. And I think that is a unique opportunity because EM is still at a hefty discount relative to developed markets.”
Brian Wolahan of Acadian Asset Management: “Emerging-market economic fundamentals are still improving and EM have a leveraged exposure to global growth.”
He is overweight on Turkey and favours tech stocks over consumer plays. He is underweight on Taiwan as it is expensive and neutral on Brazil due to stretched valuations.