Emerging markets are investment firm’s favourite
The discussions and presentations at Schroders' annual London investment conference last week all seemed to come back to one topic - emerging markets.
Speaking about the global downturn, Alan Brown, group chief investment officer at Schroders, declared “the emerging world has had a damn good crisis”. While topics such as commercial property and the recession in the UK were also discussed, the fund managers devoted much time to talking about the expected growth of the emerging markets and how its relationship with the developed world is changing.
Chris Taylor, European equity product manager, said Europe was less dependent on the US now, and the emerging markets were more important to Europe in relation to trade.
Nick Gartside, head of global fixed income, later explained his penchant for emerging market debt.
“The emerging markets have had huge problems but they have sorted themselves out and now they are well-positioned. The people there have savings. Emerging markets are providers of capital to indebted nations and they have the ability and willingness to repay money and pay interest too.”
Meanwhile Allan Conway, head of emerging market equities, was naturally brimming with enthusiasm for the region. “Emerging markets will do significantly better than the developed markets next year, no matter if we get a U, V, W or whatever other shape recovery,” he announced.
“They used to rely on the developed world for growth (through exports), but that has been reversed. The majority of global growth is now from the emerging markets.”
According to Conway, the decoupling story has been won, as the region is no longer sensitive to what is happening in the developed world.
Matthew Dobbs, fund manager of the Schroder Asian Alpha Plus fund, was also bullish about Asia, but joked that he'd like to swap the Philippines for Brazil and then he might have the perfect region to cover.
“Asian assets, currencies and equities are having a very good time while the US and Europe grapple with their tenuous recovery,” he noted. “Asia will eventually shift towards decadence and a better lifestyle for their consumers.”
The Asia and emerging markets growth story sparked envy among fund managers who covered different geographic regions.
Andrew Rose, manager of Schroder Tokyo fund, admitted there had been disappointing returns in Japan over the past 10 years compared to the rest of the world. One financial adviser delegate said he had stopped recommending any Japan exposure to his clients.
However, Rose argued that the country wasn't a completely lost cause: “You shouldn't be overweight in it but at the same time you shouldn't be underweight. The Japanese stock market has gone down over the past 20 years but there have been eight vicious rallies above 30%.”
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.