Salient to Investors:
Only 3 emerging-market stock pickers avoided losing money in half1 by making prescient currency bets and buying companies insulated from economic swings and government interference. They recommend Philippine retailers, Chinese Internet companies and Indian drugmakers.
Lewis Kaufman Thornburg Developing World Fund said there are many going wrong. Kaufman is overweight Southeast Asian countries, underweight holdings in energy industry and holds no stocks in South Korea. Kaufman said the Philippines is on the cusp of an investment cycle which will filter through to the consumer part of the economy, while the Philippine peso has become attractive after depreciating 6 percent against the dollar during the past month.
Anindya Chatterjee at CNI Charter Emerging Markets Fund is overweight Asian consumer companies because the region’s expanding populations and high savings rates will spur growth even if the global economy slows. Chatterjee said in the global environment, and over the longer term, it makes more sense to focus on domestic demand driven by demography, as consumption is more durable through economic cycles.
David Semple at Van Eck Emerging Markets Fund said some of the less efficient emerging-market stocks are being found out in a world of lower growth, and the index is not a very good representation of what emerging markets have become – companies we buy can do very well, even in adverse situations. Semple is paring Chinese holdings and adding to Indian health-care stocks.
Semple, Chatterjee and Kaufman said they tend to avoid state-owned companies as slower economic growth increases the likelihood of government intervention and wasteful spending.
The MSCI emerging-markets index has trailed the MSCI World Index of developed-nation stocks by 21 percent in 2013 through June 21, the biggest gap in 15 years. The emerging-markets index is at 1.4 times net assets, the lowest level since September 2011 and 28 percent below the MSCI World Index, the biggest discount since 2005.
Eddie Perkin at Goldman Sachs Asset Mgmt said as a contrarian and believer in mean reversion, the fact that the BRIC markets have underperformed for 2 years now makes me very interested in those markets. Perkin said the BRIC and growth market countries have been left behind as the world equity markets have moved ahead and there’s really good value there.
Investors withdrew a net $18 billion from emerging-market stock funds during the past 10 weeks, Morgan Stanley wrote in a June 21 report.
John-Paul Smith at Deutsche Bank said that while the retreat in emerging markets has left stocks oversold, the longer-term outlook is still negative, and China is still very bearish for the emerging equity asset class over the medium and longer term.
The World Bank lowered its 2013 forecast for growth in China to 7.7 percent, which would be the slowest since 1999, cut developing-nation growth to 5.1 percent versus 1.2 percent for advanced economies.
Euromonitor International said consumer spending in Asian emerging markets will increase 9.2 percent on average in 2013.
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