Outlook for emerging and frontier markets
Michael O’Brien, Manager of Fundsmith Emerging Equities Trust (FEET), said: “The vast majority of companies in FEET’s portfolio have net cash and resilient business models based on repeat, low-ticket transactions and backed by high barriers to entry. We believe that the businesses in our portfolio are going to continue to benefit from the rise of the emerging market consumer and trends such as formalisation and consolidation. This is something which the crisis will likely accelerate even before economic recovery takes hold at some point later on this year or next year. We would not be surprised if there is greater investor interest in emerging markets once recovery becomes visible given their stronger long-term growth trajectories.”
Mario Solari, Portfolio Manager of Genesis Emerging Markets, said: “Countries that are likely to be relatively better off are those that combine high levels of testing with relatively robust economies and this includes Taiwan and Korea. At the other end are Brazil and South Africa where testing is low and existing budget and current account deficits make it harder to turn on the fiscal taps. We remain bullish on the long-term opportunity in emerging markets. The long-term growth outlook is compelling considering the demographics and income convergence opportunities, and our markets are often inefficiently priced. We believe this is particularly the case today. We seek to identify a diverse group of quality companies and combine them into an attractive portfolio offering good long-term returns.”
Ross Teverson, Co-Manager of Jupiter Emerging & Frontier Income, said: “The current environment presents significant challenges to many emerging and frontier market companies. However, it is also important to recognise that valuations are very low relative to history for many companies and sectors within the asset class. These low valuation levels only ever tend to be reached during periods of greater uncertainty, but it is also the case that they have typically created compelling long-term buying opportunities in emerging and frontier market equities.”
Austin Forey, Manager of JPMorgan Emerging Markets, said: “Current market conditions reinforce that the way we have always invested, focusing on strong balance sheets and large competitive moats, is the right philosophy. We have been careful through this time to re-evaluate all our investments to try to ensure that they meet these high standards, and sales have reflected where we had doubts in this regard. The corporate world is rapidly changing and there will be big winners and losers; for investors in emerging markets, we believe the opportunity set is bigger and more diverse than ever before, particularly in China.”
Andrew Ness, Portfolio Manager of Templeton Emerging Markets, said: “In our view, domestic recovery in north Asia as well as lower oil prices are supportive of a number of emerging markets, but the extent to which stimulus policies can offset demand destruction remains to be seen. Valuations relative to developed markets also look more appealing than they have for some time, although there will be significant volatility in earnings forecasts over coming months. There will be a hit to earnings in Q1 for most businesses and most likely Q2 due to supply shocks and weaker demand activity globally. Although we expect some normalisation in the second half of 2020, we can’t rule out a delayed recovery should there be a more prolonged and severe global recession.”
