Over 25 years to the end of April 2018, the Global Emerging Markets (GEM) sector has returned 848%, according to the Association of Investment Companies (AIC). An impressive figure. However, in the past six weeks there have been some “wobbles” due to global stock market falls and the strengthening of the US dollar.
President Trump’s relationship with North Korea and China, hasn’t helped emerging markets’ volatility. On May 24, Trump said he will not be attending the summit with North Korea on June 12 citing “tremendous anger” and “open hostility” from North Korean leader Kim Jong Un, only to possibly reverse this decision a couple of days later. As of May 29, Trump has indicated that the summit might now go ahead in Singapore, after a visit from North Korean official, Gen Kim Yong-chol.
China trade wars
On April 3, President Trump finally took action on China by placing 25% tariffs on approximately 1,300 Chinese goods, targeting about $50bn of 2018 imports.
China’s response followed less than 24 hours later, which was to target up to $50bn on 106 US products annually. President Trump subsequently threatened to place an additional $100bn of tariffs on Chinese goods.
Bearing North Korean and China tensions in mind, conditions are touch for emerging markets, “but that itself doesn’t make emerging markets unattractive [for the investor]”, says Monica Defend of European asset manager Amundi in the Financial Times.
Below several investment company managers have identified a few emerging markets, they feel will achieve similar growth to that of the US in the future.
Terry Smith, manager at the Fundsmith Emerging Equities Trust says: “Asked to name an emerging market which might emulate the experience of the US. I would choose India. Why? India is a democracy. India has rule of law and an independent judiciary and, in fact, ranks very highly in most surveys of protections for minority investors. Whilst I am naming a country, you don’t invest in a country. You invest in shares of companies and India is a repository of some of the highest quality consumer businesses in emerging markets in my view.”
Chetan Sehgal, manager of Templeton Emerging Markets Investment Trust (TEMIT) says: “We believe that China and India are two economies that could experience a similar trajectory. Up until the 19th century, China and India were the two largest economies in the world in terms of GDP. The US, however, overtook then by the turn of the century.
“The International Monetary Fund (IMF) forecasts China and India to grow by 6.6% and 7.4% respectively in 2018, ranking them among the fastest-growing major economies in the world. The rapid adaptation of information technology in emerging markets such as India and China has further propelled their strong growth trends.”
Ross Teverson, co-manager of Jupiter Emerging & Frontier Income Trust mentions China also, but he says: “There are many other countries within emerging markets that also have the potential to experience significant structural change in coming years. For example, within sub-Saharan Africa, we see a number of attractive long-term investment opportunities, as well as improved infrastructure, communications and technology.”
Frontier markets also have further potential, Sehgal says: “In the frontier-market universe, Vietnam is one of the most populous countries, with approximately 100 million, and it is also one of the fastest growing economies, with GDP growth in 2018 estimated at 6.6%.”
Sabuhi Gard is an investment writer for Incisive Works.
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