Positive growth trends in emerging market stocks
"Of particular interest are South Africa's Netcare, China's Trip.com and Vietnam's Hd Bank and India's Axis Bank."
3' min read
Key points
3' min read
Rates, US elections and the geopolitical scenario. These are the three factors that will particularly affect the emerging markets. Laurence Bensafi portfolio manager, deputy head of emerging equities at Rbc BlueBay, explains in this interview.
Emerging economies are very sensitive to US interest rates. Do you think the start of Fed cuts will trigger a new positive cycle for these economies?
The new era of rate cuts should mark the beginning of a rate reduction cycle that will stimulate growth in most emerging markets, reducing the debt burden on businesses and consumers.
What impact could the recent stimulus package launched by the Pboc to support the Dragon economy have?
The government's increasing focus on supporting growth is a positive development after a period of increased regulation and control that led to a period of weakness. However, we are sceptical that reducing the reserve requirement ratio and cutting lending rates will be enough to trigger a recovery. The deflationary impulse in China is not due to high rates or lack of liquidity. On the contrary, ample cheap credit has led to overcapacity, resulting in falling prices and margins.
What other emerging markets do you find most interesting?
Vietnam is attractive from a valuation perspective and is an important outsourcing hub for the Asian region, attracting increasing foreign investment. Indonesia is one of the strongest and fastest growing economies, but is going through a political transition that raises some fiscal concerns, which has led to widespread selling, making the market more attractive to value investors like us. Finally, one of the markets that has fallen out of favour with investors in recent years, South Africa: recent elections have led to the formation of a new government of national unity and the country's fundamentals are improving.
Besides the geopolitical risk related to the conflicts in the Middle East and Ukraine/Russia, what other risks are you monitoring in emerging markets?
The performance of the asset class will be influenced by five other factors: the performance of Ia-related stocks; the US election; the dollar and rates; China; and GDP and earnings growth. Although these factors may cause some volatility in the short term, in the long term the asset class is well supported by attractive valuations and stronger relative economic growth.
