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My Three Big Calls: Peter Askew on emerging markets, Japan and technology

Emerging markets

They have been firmly out of favour with investors for some time. After three years in which they significantly underperformed developed markets, they began the year on a further downward trend, with the MSCI Emerging Markets index down 5.77 per cent in January.

Since then, though, there have been more positive signs, with the index rallying 1.32 per cent in February and 3.61 per cent in March. Apparently, last year’s poor performance and a weak January have attracted both retail and institutional investors as emerging market equities now look relatively cheap compared with developed markets.

Emerging markets, as classified by MSCI, includes China, the world’s second-largest economy, and South Korea, home of Samsung Electronics, which has a market capitalisation of over $170bn. It also encompasses Asian, Latin American and European regions and, from May, the newly promoted frontier markets of Qatar and the UAE. So it pays to know where your exposure is.

Last year, North Asia significantly outperformed South-east Asia, frontier markets massively outperformed their “emerging” counterparts, Latin America lagged and individual countries such as India, Indonesia and Turkey suffered from currency depreciation as a consequence of their external account imbalances.

We feel a more granular approach to emerging markets is warranted.

Given frontier markets’ huge outperformance over emerging markets, we have taken our profits and bought into managers with a real stockpicking ability either across the developing world, in Asia or specifically in China. China may be slowing but 7 per cent GDP growth with 3 per cent inflation is still not a bad outcome. You need to have faith in the authorities sorting out the shadow banking system but then nothing is perfect.

Japan

The Topix index in Japan endured three straight down months in Q1 as investors worried about the sustainability of Prime Minis-ter Shinzo Abe’s Abenomics programme and the impact of a VAT hike. Yet in Japan, earnings estimates are less challenging than in most of the developed world.

For that reason, together with the changing domestic corporate environment, we continue to like Japan although Abe could do with concentrating solely on economic improvement and doing less sabre rattling in Beijing’s direction. 

Technology and healthcare

In the US, we have seen a pull-back in the tech and biotech sectors for reasons that include profit-taking and a poor IPO for King Digital, the company behind mobile gaming phenomenon Candy Crush.

The sell-offs are interesting. We are great believers in the advances technology is bringing to the broader healthcare market rather than just the extremely volatile biotech sector, and technology itself continues to change the way the world operates. 

Growth opportunities exist in technology and healthcare and both remain long-term themes in our portfolios.

Peter Askew is co-manager of the T Bailey Growth fund

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