Archived article
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
magazineIs the market at peak bearishness on emerging markets?
Emerging markets have been having a tough time this year as a stronger dollar and weakened investor sentiment have hit performance.
The accompanying chart, based on the latest Bank of America Merrill Lynch fund manager survey, shows the extent to which fund managers are bearish on emerging markets relative to the 17-year history of the survey.
It is also important to note that the main stock market index in China – the Shanghai Composite – is currently trading at the same level it did at the start of 2007, illustrating how certain markets have struggled to make progress.
But the team behind upcoming stock market float Mobius Investment Trust believes the market is wrong to remain so pessimistic.
The trust aims to raise over £200m when it debuts on the London Stock Exchange on 1 October.
The average correction for emerging markets has generally been seven months, with the longest lasting just over a year, according to Mobius Capital Markets’ founding partner Greg Konieczny.
INVESTORS ‘OVER-EMOTIONAL’ ON EMERGING MARKETS
Fellow Mobius founding partner Carlos von Hardenberg insists emerging markets will recover and investors will become rational as they realise fundamentals are robust as companies enjoy
strong earnings.
They argue that over the last decade, emerging market firms have been tapping into industries like steel and car-making traditionally dominated by the West. This has helped them to generate good earnings and benefit from domestic demand.
According to von Hardenberg emerging markets also feature lower debt levels, controllable inflation and benefit from a population boom and surging demand, making companies less dependent on international trade.
INVESTING IN UNKNOWN UNDERDOGS
Konieczny and von Hardenberg’s counterpart Mark Mobius, a veteran of emerging markets investing, believes the new investment trust differs from its rivals by focusing on undervalued firms with the potential for environmental, social and governance (ESG) improvements.
He says companies developing and adopting technology as well as healthcare and education businesses are of particular interest as these are expected to grow rapidly in the future.
Unlike other investment trusts, Mobius explains his new fund is not going to invest in well-known emerging market ‘champions’ or slavishly follow an index. Instead the focus will be on smaller family-run companies which are open to change.
Mobius is confident that developing an action plan on how to improve governance in these businesses should reduce risk and help these firms enjoy a re-rating. (LMJ)
Important information:
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
