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manager F&C.
Key to this will be the fact that valuations are currently below the long-term trend, coupled with expectations that inflation may have peaked in many economies and will fall back over the coming months.
Markets that have suffered the highest inflation in recent months – such as China and India – have performed relatively poorly.
But F&C’s Global Emerging Markets team says inflation has probably already begun to come off in Indonesia, and potentially reached a peak in China at 6,4 percent in June, though Indian inflation will take a little longer to reverse.And while many investors may still think of Chinese stocks as being expensively valued, the market is in fact at a discount both to the emerging markets universe as a whole and to its Asian neighbours, having been progressively de-rated over time.
Mike Sell, manager of the Thames River Emerging Asia Fund, said: “GDP growth in China this year is expected to be in the region of 9 percent, and we strongly expect a soft landing scenario; the higher than expected Q2 GDP of 9,5 percent is supportive of this.
The long-term story for China is still intact and it is an increasingly important part of the Asia Pacific region. China deserves to be a large part of people’s emerging market portfolios, either through a regional or GEM product.”
Overall, emerging market valuations are below their long-term trend, on a forward price/earnings ratio of 10,7x, which in the team’s opinion provides investors with an attractive entry point. The team expects emerging market equities to outperform their developed market counterparts, as money flows out of the likes of North America and Europe in the wake of concerns over fiscal deficits and sovereign debt crises.
The F&C Global Emerging Markets team currently has key over weights in China, Indonesia, Brazil, Poland, Turkey, while its key under weights are South Africa, Taiwan, Mexico and Malaysia. – http://www.investortoday.co.uk