Fund managers have an ‘emerging’ wish
new york — After emerging market stocks led global equity markets lower in a brutal 2018, some USbased fund managers are betting that the asset class may have the largest rebound in the new year.
It may not look likely at the moment, given that an economic downturn in China prompted iPhone-maker Apple to lower its quarterly revenue forecast on Wednesday for the first time in a decade. Its shares slumped nearly 10 per cent after CEO Tim Cook blamed the US-China trade war and “economic deceleration”, prompting broad selloffs around the world the following day.
Yet fund managers from Westwood Holdings Group, GMO, T. Rowe Price and Causeway Capital are among those who are betting that emerging market stocks will post outsized gains in 2019. They cite a combination of compelling valuations and a likely decline in the value of the dollar that will help accelerate economic growth.
As China continues to bear the brunt of US President Donald Trump’s focus on trade tariffs, fund managers are expecting that shares in countries like India, Thailand, Peru, and Brazil will outperform the China-dominated emerging market benchmark index.
“We want to lean into the fear in the markets,” said Sebastien Page, head of asset allocation at T. Rowe Price. He expects emerging markets will outperform in the year ahead as the Fed curtails its pace of interest rate hikes and the dollar subsides. “When you have a recovery in risk assets, those that have been undervalued can snap back the most.”
Emerging markets have been in a bear market since September, placing them already four months into the deep declines that rocked the US equities market in December.
The average bear market in emerging markets has lasted 220 days and posted a decline of 32.4 per cent, or about 7 percentage points more than the roughly 25 per cent drop in the MSCI Emerging Market Index since it hit nearrecord highs last January, according to data from Ned Davis Research.
32.4%
Drop in emerging markets over 220 days While emerging markets started the year with another roughly 1.7 per cent loss over the first two trading sessions, fund managers say they are increasing their bets on stocks in countries that are among the most beaten-down, expecting they will have the largest rebound if and when a global bull market in equities resumes.
“I’m actually a lot more positive than this time last year because there are tremendous opportunities
to add to high-quality names in insurance and some banks,” said Patricia Perez-Coutts, portfolio manager of the Westwood Emerging Markets fund.
She has been increasing her stakes in South Africa, Thailand and Peru, she said, with the largest positions in companies such as South African life insurance company Sanlam and Credicorp. Shares of Credicorp are up 8.8 per cent over the last 12 months, while shares of Sanlam are down 3.9 per cent over the same time.
Perez-Coutts has been underweight China since the start of last year, though she is starting to wade back in by buying shares in gaming and e-commerce firms that have plunged. —