Earnings Growth Presents Opportunities in Emerging Markets

Investment managers have seen signs of a broadening out of earnings growth within emerging markets

Simon Dorricott 13 June, 2018 | 2:23PM

This article is part of Your Guide to Emerging Markets. All this week, we are focusing on emerging markets, sharing their potential pitfalls – and where you can make a pretty penny.

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Emerging market equity returns remain just ahead of developed markets year to date, albeit only just in positive territory in euro terms. This overall picture does, however, mask some changes in the relative fortunes of emerging markets, with strength in the early part of the year turning to relative weakness since late March, when emerging markets started to lag, as developed markets saw gains on the back of improving economic growth expectations.

Views on US interest rate policy and the consequent strengthening of the US dollar caused a sell-off in emerging market currencies, while there has also been some recent weakness at the stock level. Growth stocks that are a large part of the MSCI EM Index and were responsible for much of the gains seen in 2017, such as Taiwan Semiconductor and Tencent, have seen declines over this short period of time holding back index returns.

Overall, however, emerging markets GDP growth remains above that of developed markets, particularly within Asia. Investment managers have seen signs of a broadening out of earnings growth within emerging markets sectors, and, although markets are expected to be more volatile, this should present opportunities for high quality active fund managers.

Fund Picks?

A Morningstar Analyst Rating of Bronze is held by the Fidelity Emerging Markets fund managed by Nick Price. He sits at the top of the considerable resources that feed into this product, including a team of over 40 analysts who contribute research to regional portfolio managers. Price will take input from these managers and analysts, but also conducts a lot of his own due diligence work. The resulting portfolio generally shows growth characteristics as well as quality aspects.

JP Morgan Emerging Markets Equity holds a Morningstar Analyst Rating of Bronze and is run by Leon Eidelman. He makes good use of the 30-strong global emerging markets and China analyst team, all of whom operate within a structured investment approach that produces a formal assessment of company quality and stock upside.

The process is bottom-up and has a quality growth bias at the stock level, but at times the manager may take advantage of short term macro-weakness to initiate positions.

A version of this article appeared in International Adviser magazine

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Fidelity Em Mkts Y-DIST-USD10.85 USD-0.54
JPM Emerging Markets Equity C (acc) USD26.90 USD-1.13

About Author

Simon Dorricott  is a Senior Fund Analyst for Morningstar