View more on these topics

First State warns of emerging markets bubble

Jonathan Asante, the head of global emerging market equities at First State Investments, has warned that some emerging markets and stocks “are now entering bubble territory”.

In an outlook and commentary piece sent to shareholders, First State says policy makers appear to be recreating the conditions of 1999 and 2007, just before stockmarket bubbles around the world burst.

Asante names another factor this time round, namely the risk of China winding down its infrastructure spending, which would cause difficulties for commodity-related economies and companies.

“We can only speculate what the result will be this time but it could be worse than what experienced in 2000 and 2008,” Asante writes. “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 companies to get inflationary protection. Yet the team has turned to less popular areas, such as telecommunications and what they consider to be the best run technology companies, as consumer companies are becoming overly favoured.

“Valuations have reached rich territory, tilting us towards a more defensive stance,” Asante writes. The valuation discount of developed versus global emerging markets means that many companies in developed countries, especially those with heavy exposure to emerging markets, are becoming more and more interesting to investors.

As Asante and his team have turned cautious, they are focusing on companies with strong franchises and sustainable cash flows. Economic conditions are becoming increasingly challenging for global emerging market managers as monetary policy in the west risk causing bubbles. In several countries, most notably India, inflationary pressures are rising and interest rates may too.

First State’s Latin America team recently sent a separate note to investors in which it warned of overheating in the economy. Asante has been one of several high-profile emerging markets managers who have acknowledged that there is no direct correlation between ongoing economic growth and stockmarket returns.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm