Invest interest
This value has already begun to draw in investors. The recent data on fund flows from the IMA has shown a substantial pick-up in money flowing into funds in the IMA Global Emerging Markets sector and the IMA Asia Pacific excluding Japan sector.
And a recent global fund manager survey from Bank of America Merrill Lynch in August found that the number of managers buying into emerging markets had hit an 18-month high.
According to Robert Horrocks, chief investment officer at emerging markets boutique asset manager, Matthews Asia, this improved sentiment in terms of fund flows has not yet been particularly affected by the recent sell-off that he terms a “knee-jerk reaction to the idea of monetary tightening”.
Mr Horrocks says that sentiment and interest from clients in his firm’s funds, which was very low at the start of the year, has picked up through the summer and has not yet let up.
And he insists that a rise in US and UK interest rates should not have a massive impact on Asian markets. Instead, he sees Asian markets continuing to rally in the medium term, which he puts particularly down to an improvement in the earnings growth from companies in the region.
An improving outlook on the company level is also drawing in bottom-up stock-picker managers on global equity funds. Jeremy Lang, who co-manages the Ardevora Global Equity fund, says his current review of the global equity universe has thrown up a number of interesting opportunities in emerging markets. Particularly Asian markets such as China.
Mr Lang has had a negative stance towards the region for most of the life of the Global Equity fund, which was launched in 2010, but he says that he is now likely to start upping his weighting.
Headwinds
But while some companies may be emerging from the gloom in Asia, there are still macro economic headwinds aside from rate rises that remain. Chief among those is China.
Recent data from the powerhouse of emerging markets has disappointed the markets, showing a slowdown in the growth of industrial production and the property market. This has, in turn, caused some commodity prices to tumble.
The price of iron ore has plummeted so far this year. Many Asian markets are net exporters of commodities, so price weakness in this sector, if it persists, will cause problems for the region. Australia is particularly badly exposed to fluctuations in commodities as it makes up a substantial portion of its economy.
However, Joanne Warner, head of global resources at First State Investments, says that the mining sector should be classified as being “close to the bottom of the cycle”. She says demand for commodities “remains quite robust”, in spite of the issues in China, and that the main problem was an increase in supply.
