First State Investments head of global emerging market equities Jonathan Asante has warned that some emerging markets and stocks “are now entering bubble territory”.
In an outlook and commentary sent to shareholders, First State says policymakers are recreating the conditions of 1999 and 2007, just before stockmarket bubbles burst around the world.
Asante names another factor this time – the risk of China winding down its infrastructure spending, which would cause difficulties for commodity-related economies and companies.
He says: “We can only speculate what the result will be but it could be worse than in 2000 and 2008. It is more important than ever not to sacrifice quality for valuation, given how risky things are becoming.”
First State is still heavily invested in consumer staples to get inflationary protection. Yet the team has turned to less popular areas, such as telecommunications and technology , as consumer companies are becoming overly favoured.
Asante says: “Valuations have reached rich territory, tilting us towards a more defensive stance.
The valuation discount of developed versus global emerging markets means many companies in developed countries, especially those with heavy exposure to emerging markets, are becoming more and more interesting to investors.”