EVENT ROUND-UP PA EMERGING MARKETS FORUM
Dean Newman, head of
emerging market equities,
Invesco Perpetual
Robert Hall, institutional portfolio
manager, MFS Investment
Management
Shin Lee, emerging debt
specialist, Pictet
Jonathan Ong, portfolio
manager, Macquarie
How do your clients access emg mkts?
80
70
60
50
% 40
30
20
10
0
Source: voting at PA Emerging Markets Forum. More than one vote
per delegate was allowed.
Dean Newman, head of
emerging market equities,
Invesco Perpetual
Newman is head of
Invesco’s emerging markets
team and put emerging
Europe into a global
context, saying its valuations
are cheap and
describing them as “underestimated”,
its economy as
“robust and stronger than
in the past.”
When many people
think of emerging Europe,
they think of Russia, but
Newman said this is far
from a one country story.
Domestic demand across
the region is improving and
is far stronger than in the
developed nations – quoting
figures from Goldman
Sachs, in the UK, for example,
domestic demand is
expected to be 1.3% higher
this year than last and 2.6%
higher in 2011; in these
same years, the equivalent
figures for Russia are 3.4%
and 7.9%; 2% and 2.8% in
the Czech Republic; and,
3.6% and 4.6% in Poland.
Turkey, for example,
Newman describes as
having a relatively young
population (out of 70 million)
with huge pent-up
consumer demand – its
domestic demand is likely
to grow by 8.1% this year
and 5.9% next.
For the stockpickers,
Newman says there is an
Global emerging market funds
BRIC funds
Asia Pacific ex Japan funds
UK large cap funds
Other thematic funds
abundance of cheaply
valued, well run companies,
including some traded
on developed market
exchanges. He describes
KazMunaiGas as a cash-rich
and undervalued oil play in
an attractive tax regime,
that is traded on the London
Stock Exchange.
Robert Hall, institutional portfolio
manager, MFS
Investment Management
For many market participants,
perceptions of
emerging market debt
(EMD) as a high-risk/highvolatility
asset class
changed when EMD defied
expectations during the
global financial crisis by
proving remarkably resilient
relative to other risk
assets.
Recent worries over
sovereign risk and the
increasingly unsustainable
debt dynamics of many
developed country economies
underscore what Hall
views as the real decoupling
of emerging from
developed markets.
Positive fundamentals,
Hall added, are not enough
to justify investment; it is
also critical to consider valuation.
EMD remains attractive
versus other asset
classes and, while spreads
are currently well inside
historical averages, emerging
market debt is unique
among fixed income asset
classes in its long-term
trend of upward migration
in credit quality.
Within the asset class,
Hall sees great opportunities,
including both hard
and local currency sovereign
debt, quasi-sovereign
paper, and credit. Investors
should temper their return
expectations for EMD following
last year’s substantial
run-up, but Hall argues
in 2010 the carry that EMD
offers could provide an
effective defence against
rising rates.
[Delegates missed out on
the presentation from Hall
as he was snow-bound at
Munich airport.]
Shin Lee, emerging debt specialist,
Pictet
Nearly two-thirds of the
wealth managers who
attended the forum have
more than 75% of their client’s
emerging market
exposure in equities.
Against this backdrop,
Pictet’s Shin Lee pressed
her claim for investors to
use local currency debt
given the resilience of
developing markets. This
resilience she explained as
coming from the shift from
regimes using more inflation-targeting
policies and
floating exchange rate
mechanisms. The central
banks are shifting towards
being mandated to running
inflation targets which is a
huge change from ten
years ago.
When they saw the
stock market problems in
the early ’00s, she explained
that countries like Turkey
sold off their currency,
hiked up interest rates and
sold their FX reserves. A
decade later and their
response to the current
financial crisis was far more
mainstream and orthodox -
important for investor
confidence.
Such is the development
of emerging countries that
for the past five years they
have been issuing bonds in
local currencies. Five years
ago there was $1.5trn in
outstanding issuance of
local currency debt, with
£1trn in US dollars; while
the outstanding dollardenominated
figures has
remained static, there is
now $8.5trn in local currency
debt.
Jonathan Ong, portfolio manager,
Macquarie
Infrastructure is more than
simply the large physical
structures of airports, railways
and engineering
projects, as Ong explained,
but also includes social
infrastructure (hospitals
and schools), regulated
assets (water and sewage
and pipelines), and market
priced infrastructure (integrated
utilities and
telecoms).
User demand is the key
to infrastructure with essential
services the most
important aspect of this.
This goes a long way to
explain why developing
economies are such great
sources for infrastructure
investors as their demand
is often for what developed
economies have seen
as being essential for decades.
Increasing urbanisation
is another key longterm
driver with many
growing cities already
experiencing shortages of
electricity, gas, transport
links and sanitation.
Ong described the
world in 2015 as having 22
new cities with a population
of more than 10 million.
Of these, 18 will be in
emerging markets. These
cities have not even been
built for the needs of its
existing population let
alone its future one so
infrastructure development
will be essential.
18 PORTFOLIO ADVISER [www.portfolio-adviser.com] MARCH 2010
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