Four managers on emerging markets in 2018
By Sonia Rach, 22 Dec 17
Emerging market equities have been a popular topic of discussion when looking ahead to 2018, but is this where investors are headed? Four fund managers outline reasons to remain positive in the emerging and frontier regions next year.
Gary Greenberg, head of emerging markets at Hermes Investment Management and manager of the Hermes Global Emerging Markets Fund, says the environment for emerging markets is healthy at present.
This, he believes, is being driven by the growing global economy, which will continue to be bolstered by non-inflationary US and European recoveries into next year. Interest rates will rise, and QE will taper off, but at this point most economies can take this in their strides, he adds.
Greenberg’s fund invests primarily in information technology (36.28%), financials (22.93%) and consumer discretionary (21.90%).
His largest holding is in household name Samsung (7.07%) and he also has holds gaming giant Tencent and e-commerce company Alibaba.
Greenberg said: “In emerging markets themselves, current accounts, inflation and growth are generally supportive. Foreign indebtedness makes Turkey and South Africa particularly vulnerable, but most emerging markets have built strong defences against foreign rate rises and investor panics.”
The fund has outperformed the IA Global Emerging Markets benchmark significantly with returns of 72.1% and 100.8% versus 46.8% and 44.4%, over a three-year and five-year period. It has also received FE’s top quartile ratings for these periods.
Greenberg added: “Microeconomic fundamentals such as valuation, earnings growth and cash flow generation also argue for continued progress at the benchmark level. The Chinese authorities have introduced measures to slow the property market, with mixed success so far. India’s growth is expected to reaccelerate in their new fiscal year; Russia and Brazil are already seeing an economic recovery.
“Earnings growth in emerging markets was strong this year. We expect it to remain positive but more moderate in 2018. The valuation of the emerging market sector is fair: it can improve if earning growth accelerates, but it will have to do so against what we at present assess as a mild headwind of US tightening. Multiples do expand in the early stages of Fed rate hike cycles, but at a certain point start to struggle.”
