Chance to build on Brics fall
IT’S a truly testing time to be an investor in emerging markets.
India saw the biggest one-day slide in almost 20 years for the Indian rupee against the dollar – falling 4pc to reach Rs 69 on Wednesday.
Growth in China is stuttering as expansion slips again – the rate dropping from 7.7pc to 7.5pc.
In Brazil the finance minister has conceded a ‘mini crisis’ as the real slumped by nearly a fifth since May against the dollar.
And Russia? Running a risk of its second recession in five years, many analysts warn.
Although each so- called ‘Bric’ emerging market economy was already grappling with its own problems, the decision by US Federal Reserve head Ben Bernanke to ‘taper’ its policy of printing money has made the going a lot tougher.
By buying $85bn of US government bonds a month, the Fed has helped to lower interest rates and fuelled a better climate for domestic recovery.
Initially, this also unleashed an avalanche of cheap money that went looking for juicer returns and investment opportunities in the Bric countries and others such as Turkey and Indonesia. Big institutional investors ploughed cheap cash into these economies, boosting local shares, financial markets and other riskier investments.
But talk of an end to QE and suggestions of an interest rate rise in the US have sent investors flocking back home, rocking emerging markets and their currencies.
To make matters worse, the crisis in Syria has sent oil prices soaring to more than $115 a barrel. Emerging market economies, heavily dependent on oil, will have to foot a growing import bill. India has taken a massive hit. As the rupee plummets, more of the currency needs to be spent on imports – further hitting the ailing economy.
Indian stocks followed the rupee’s fall on Wednesday, with the Sensex index of 30 top companies tumbling by 2pc, and the index now down by 4pc since January.
It’s a long way from 2008 when the world tipped into recession and savers pumped around £13.5bn into funds investing in Bric markets.
In January, retail savers ploughed in some £223m according to the Investment Management Association. In June, it stood at £13m.
China has also been hit particularly hard by pessimism about its economic health.
Over the past few months, ever greater sums of investors’ cash have been pulled out of UK funds holding shares in Chinese companies: £19m in May, £23m in June; and £25m in July.
But as these markets and currencies have a fallen a long way, so opportunities to invest cheaply are starting to crop up.
Although not for the fainthearted, Brian Dennehy of fund supermarket Fundexpert believes now is a great opportunity for savers tentatively to dip their toe in.
‘The best way for anybody keen on these markets is to invest by drip feeding money in every month,’ he says. ‘ The fact markets are down is great – get in now because I believe, eventually, they will explode upwards.’
He tips the Newton Emerging Income fund, which invests in companies that focus on growing dividends – a sign of a strong business with disciplined management.
The fund invests in firms like smartphone microchip maker Taiwan Semiconductor Manufacturing, South African private hospital operator Life Healthcare Group Holdings and Pico Far East Holdings, a Hong Kong firm operating in events and marketing services.
Adrian Lowcock of wealth manager Hargreaves Lansdown says there are already signs of investors venturing back in as part of a long- term strategy. ‘Putting in monthly sums instead of a lump sum will mean you are spreading the risk and not trying to call markets or time your invest.’
He backs JP Morgan Emerging Markets, a racy fund that takes on a bit more risk.
‘ This fund has about 20pc invested in China, which is looking pretty cheap at the moment.
‘Although it can always get cheaper, you have to remember you’re buying for a minimum tenyear period,’ he adds.
The fund’s top investments include Samsung Electronics and Housing Development Finance, a housing finance provider in India.