Special RepoRt pa emeRging maRketS inveStoR bReakfaSt foRum 2008
Battered but still standing
The first Portfolio Adviser Breakfast Forum saw four emerging market experts giving
their brutally honest insights into the current opportunities and problems in global
emerging markets. The GEMS garden is not all rosy but neither is it as covered in
manure as some would have investors believe
Jacqueline Aldhous, head of
offshore research, Old Broad
Street Research
Aldhous posed the question:
“Are emerging markets
too risky, or are they
too risky to miss?” The
latest forecasts for developed
economies is for
growth of between 1% and
1.5% this year and levelling
out in 2009; emerging markets,
on the other hand,
are expected to grow by
6% or 7% this year and 5%
or 6% next year.
She is under no illusion
that emerging markets will
slow in what is a truly
global slowdown, although
the pace at which they do
so will not be as fast as for
developed markets. She
argues that the fundamentals
are largely still intact,
that the price-to-book of
1x is the most compelling
since 1998. Valuations are
still below the levels of
what was the height of the
Asian financial crisis, when
earnings growth was flat to
negative and returns on
equity (ROE) was 2% to
3%. Current ROEs are at
17%, although they are
subject to downward revisions
along with earnings.
One issue that global
emerging market investors
have had to contend with
this year, Aldhous argues,
is the fund managers’ failure
to rotate away from
growth. She added that it
has been impossible to
predict the degree of deleveraging
and that selling has
been pretty indiscriminate.
“I did not expect this
level of downturn and, in
some cases, emerging markets
have been unfairly
kicked,” she concludes.
Patrice Lemonnier, head of
emerging equity, Crédit
Agricole Asset Management
Patrice Lemonnier started
out as a Latin American
fund manager in 1994, just
as the Mexican crisis was
getting under way, so he
has seen much of what is
happening right now
before.
It is different this time,
he points out, as the emerging
markets, from Asia to
Russia, were at the epicentre
of the crisis back then.
Now it is the northern,
developed world in the
middle of it.
The emerging markets
have been hit by a slowdown
in energy and commodity
prices, also negatively
impacted by the
increase in the strength of
the dollar.
He argues that any
move out of the current
crisis will be led by the
developed world and cutting
interest rates will act
as a fiscal stimulus. But he
added that it is going to be
harder for the Latin
American and other emerging
economies to cut rates
to the same extent.
He does not expect
inflation to be an issue
with, for example, negative
numbers already appearing
in China (-9% in the
past three months) and
India (-3.9%).
December 2008 [www.portfolio-adviser.com] POrTFOLIO ADVISer
One positive for Latin
America is that it does not
need as big a credit adjustment
as developed nations.
“Credit is getting hit in
Latin America but the fundamentals
are good,” he
says. “We will continue to
get a contraction of credit
but there is a positive picture
for the medium term.”
Another positive is that
the Latin American banks
were not as exposed to the
sub-prime crisis.
Scott Leiberton, managing
director, equities, Principal
Global Investors
Leiberton points out that
the lines are blurring
between developed and
emerging markets, such is
the pace of their evolution,
and that emerging markets
have to be treated differently
today than they have
been in the past.
“There has been more
progress in the past two
decades than there has in
the previous two centuries,”
he suggests.
Jacqueline Aldhous, Old Broad
Street Research
Patrice Lemonnier, Crédit
Agricole Asset Management
15
To view a Ceros magazine you need to have JavaScript enabled in your browser and have the flash player 8 or higher installed. To install the latest flash player, click the icon above, install the flash plugin and then click here to refresh this page.