‘In emerging markets, I prefer Petrobras’
‘In Latin America, there is value in local-currency debt. Greater caution is called for regarding China’
Key points
Emerging markets are entering a more favourable phase, buoyed by economic growth that outpaces that of developed countries, more orthodox macroeconomic policies and a greater focus on shareholders by companies. Marco Piersimoni, Co-Head of Multi Asset Euro at Pictet Asset Management, sees the best opportunities primarily in Latin America and certain Asian markets. He is more cautious on China, where state support for strategic sectors does not always translate into adequate returns for investors. In fixed income, the preference is for local-currency debt from Brazil and Colombia. Among individual stocks, the fund manager highlights Petrobras, Zijin Mining and MediaTek.
After years of underperformance compared with Wall Street, has a more favourable phase begun for emerging markets?
Emerging markets almost always experience higher economic growth than developed countries. What is new is that this differential is occurring against a backdrop of more orthodox economic policies, corporate policies that are more shareholder-friendly, and a strong technological drive. The outlook for the private sector is favourable: higher growth translates into more robust corporate earnings growth compared with developed countries. In short, macro stability and micro dynamism are the key factors at play, and we believe they are set to endure.
A strong dollar and rising US yields: to what extent do they pose a risk to emerging markets?
Rising interest rates and a strong dollar are often a dangerous combination, particularly for countries with trade deficits and debt denominated in dollars. Among the most vulnerable are the least developed countries in Africa and certain Asian economies, such as the Philippines, Indonesia and India. It should be noted, however, that the current rise in interest rates is driven by improved growth prospects, so it is less damaging than a rise triggered by inflation. Furthermore, the movement in the dollar remains modest and is at levels seen at the start of 2025.
Emerging markets are no longer a homogeneous bloc. Where do you see the best opportunities?
Some countries are exporters of raw materials, such as those in Latin America, whilst others are major consumers but at the same time technology giants, such as South Korea and Taiwan. The ranking must also be based on the investment vehicle: in some countries, shares are the more attractive option, such as in South Korea, Taiwan and India; in others, bonds are the better option, such as in Mexico and Colombia; whilst in others still, both are suitable, such as in Brazil and Eastern Europe. China is a case apart, with equity investments that are difficult to interpret and very low interest rates: it certainly does not top the ranking. Overall, Latin America ranks well.
Do low valuations in China offset the problems in the property sector and with domestic demand?
Low valuations are often justified for very good reasons, and China is no exception. The property sector has been in deep crisis for years, private demand is subdued, and it is mainly exports that are keeping the economy afloat. The government has set its priorities: technological independence, AI, robotics, renewables and electric vehicles. These companies receive maximum state support, but the mission is political rather than focused on returns for shareholders: profit growth is sacrificed in favour of volume growth. There are therefore some extraordinary companies and global leaders which, however, do not generate sufficient profits to attract interest.
