The only place to go for growth
Glen Finegan, fund manager, First State global emerging markets fund
Emerging markets have very much come back into fashion since the bottom of the credit crunch. People who are worried about developed world indebtedness seem to be of the view that emerging markets are pretty much the only place to go for growth.
Before the crunch, commodities and energy drove the sector performance but this time around it has been domestic consumption-led – investors have been actively looking for strong consumer brands like banks and beers.
We would highlight ShopRite, a South African supermarket that is now branching out into other parts of Africa as a good stock, it is a very well run firm and has done a very good job. Another pick is Commercial International Bank in Egypt. It is starting from zero from a point of view of penetration from private sector credit – credit to GDP is very low in Egypt, mortgages and credit cards are non-existent – so this is starting from the bottom. We are expecting years of healthy growth as it penetrates the higher end of the market.
Diverse approach can pay off
Tom Record, fund manager, Baillie Gifford emerging markets leading companies fund
We are finding a lot of interesting and attractive stocks in diverse industries in a number of countries, so there is no one area where we are particularly optimistic, we are just optimistic about the sector generally.
We are looking at some of the big-cap Brazilian banks like Banco Itaù. It has technical factors that is leading to an increased share price and should be able to generate 25 per cent on equity for a number of years.
China South Locomotive is also very promising – this is a company that makes rolling stock for railways and if you look at government transport plans it should prosper. In Shanghai, for example, they want it so they can increase the rail network from 550km to 2,500km over the next decade.
We also have investments in all sorts of country outside the Bric nations. We have exposure to Turkmenistan, Peru and even places as diverse as Uganda and Namibia.
We try to keep our eyes open and try to find individual stocks that have exposure to growing economies that have structural improvements coming through and that can continue to grow for many years.
The Brics are the rocket fuel for other nations to grow. We have seen relatively simple positive structural changes and reforms come through the big nations. These should allow them to grow for a long time and because they are such a big part of the universe, you will see pretty rapid growth across the rest of the universe as a whole.
Picking misunderstood value firms
Michael Godfrey, fund manager, M&G global emerging markets fund
It is a very much stock-selection environment right now, we are certainly not in the same boat as we were 18 months ago where valuations as a whole looked very compelling. Picking the right companies and picking them at the right valuations, and then making sure those companies are going to do the right thing with your money is much more important now.
We like the big conglomerate companies in Southeast Asia. Fraser and Neave in Singapore has very attractive positions in beverages, property and in printing businesses. I would highlight Jardine Matheson too, it is a Hong Kong-based conglomerate with similar characteristics.
We believe that these businesses continue to be misunderstood by the market and are traded at discount but we are interested to see how they create value.
I have also just come back from India and it is a fabulous market for a stock selector. We really like the statelinked banks like Punjab National Bank. The market puts these state-linked banks on fractions of the multiples that the private Indian banks are on because they are seen as inefficient, boring state banks but we believe these banks have the business models that the private banks should be replicating as they operate very simple banking models in what is a structurally growing market.