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Emerging opportunities

Interest in global emerging markets was bolstered in 2007, with the sector producing returns of 32.04 per cent, according to the Investment Management Association.

The biggest beneficiaries were India, as the benchmark BSE index rose by 47.15 per cent, and China, with the Shanghai Composite index showing gains of 99.63 per cent. But this year, the IMA global emerging market index has fallen by 6.76 per cent, with Shanghai shedding 14.71 per cent and the BSE down by 11.48 per cent.

Hilary Coghill, investment director at City Asset Management, says what we have seen has not affected her long-term view. “You would still have been better off investing in emer-ging markets from January 2007 than investing in developed economies,” she says.

Coghill does not accept the notion of decoupling but sees the prospects for developing economies during a global slowdown as being relatively better than they have been historically. She says: “I do not think that markets in Asia will decouple from the US but they are much less connected than they were in the past, such as during the 1997-1998 Asiacrisis. If you are prepared to take a five-10-year view, that is when you will see the growth that you will not get in developed economies.”

The problem, says Meera Patel, senior analyst at Hargreaves Lansdown, is that many investors started to see opportunities in emerging markets late. She says: “Private investors tend to climb on to the bandwagon rather late.”

Sam Sibley, an investment manager at Beckett Asset Management and AFI panellist, says the herd mentality has meant “retail investors have panicked a bit and so some of the hot money has left the sector”.

She says despite some institutions reining back their growth expectations for emerging market economies, they are still growing faster than developed economies.

Sibley says: “We use funds with a track record of good stockpicking. In our AFI port-folios, for instance, we have the JPM emerging markets fund because we like Austin Forey, the fund manager, and because the fund can use JP Morgan’s extensive resources.”

Meera Patel says Hargreaves Lansdown sees opportunities appearing. “Our view is that even if people have bought into China this year and suffered losses, they are likely to make money over the longer term,” she says.

On a 12-month view, man-agers have not recently changed their net 17 per cent overweight in emerging mar-kets, according to the Merrill Lynch survey.

This, Sibley says, is because unlike private investors, sentiment towards emerging markets has not changed among professional investors.

The fundamentals of developing markets remain strong, says Patel, which means the focus should be on long-term growth rather than on trying to time investments.


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