Why the Time is Right to Invest in Emerging Markets

Skagen's Hilde Jenssen admits that emerging markets have disappointed investors over the past three years - but valuations are attractive and reforms are boosting returns

Emma Wall 16 March, 2017 | 2:29PM
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Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and I'm joined today by Hilde Jenssen from Skagen Funds to talk about emerging markets.

Hello, Hilde.

Hilde Jenssen: Hi. How are you?

Wall: I'm very well. Thank you. Unfortunately, emerging markets have not had a very good rap in recent years. They seem to be very out of favor and this is despite in the last 12 months having pretty healthy returns. Why do you think people are so against emerging markets?

Jenssen: Well, that's a great question. I think a lot of the unpopularity in emerging markets is because people have been disappointed over the years, especially the last five years. And people are disappointed because they keep waiting for corporate results to become stronger and companies to show better health, but it just hasn't happened at the speed that people were hoping. What we're seeing now that makes it interesting is a lot of changes in the various economies around the world that make this a particularly attractive market.

Wall: And it's a very attractive valuation point of view as well. Despite the fact that we have had a rally from the last 12 months, it's come from a very low base. So, this is a good time to get in?

Jenssen: I think so. Well, clearly, we are a value-based manager and we think long-term about business models and which companies that are able to thrive in various environments. So, with that, we look at the long-term path of earnings trajectories and take that into account when we make our investments.

But what we do see is that corporate earnings are getting stronger, cash flows are improving as well which is really important and that's an important thing to look at long-term as well. But we see underpinnings and some of the tailwinds are actually coming from reforms in various markets that also touch on the way that businesses are being run around the world.

Wall: And I think that's a very important point because traditionally emerging markets were seen as higher-risk. I know they do come with a lot of volatility. People think emerging markets means no corporate governance, no shareholder rights and therefore, they are less attractive than investing perhaps in a developed market equity. But actually, that's increasingly not the case, isn't it?

Jenssen: Yeah, and I think that's really important when you look at a company as a potential investment is not to see necessarily where the company is at the current moment and how well it's being managed, but where could it potentially be in 5 to 10 years from now and that's where we are mentally when we are looking at potential investment opportunities.

Wall: Hilde, thank you very much.

Jenssen: Thank you.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

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Emma Wall  is former Senior International Editor for Morningstar