Emerging markets are investment firm’s favourite

13 October 2009

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%.”

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