Emerging markets in Asia present a great opportunity for both growth and income investors, says the world's largest active fund manager, BlackRock.
‘While many unknowns remain, we believe emerging markets and Asia can get through this well on a relative basis,’ says Gordon Fraser. He manages the BlackRock Emerging Markets Fund (B4R9F68) alongside sidekick Kevin Jia.
The fund manager believes valuations are now close to all-time lows after a prolonged spell of being shunned. Fraser says price-to-book metrics, a measure of how investors are valuing underlying assets, are close to 1.3-times, ‘a clear buy signal in the past,’ he says.
KEY SECTORS
He co-manages a fund with material exposure to the consumer discretionary, information technology and financial sectors according to the latest available factsheet.
The developing markets expert informs Shares that currencies ‘have been severely sold off already and are presenting attractive entry points for long-term investors’. And at the end of the coronavirus crisis, he believes ‘Emerging Markets will offer growth and yield and very attractive valuations which we think investors should pay attention to now.’
MIXED VIEW ON LATIN AMERICA
In terms of particular markets, Fraser’s view on Latin America is ‘mixed with a strong preference for Mexico over Brazil’. In Mexico, where the fund is invested in Wal Mart De Mexico, Fraser sees improving economic trends ‘including increased market share of US exports, and we continue to like the set up for rates to come down further.’
When it comes to Brazil, the BlackRock portfolio manager has grown more cautious despite the market correcting considerably, concerned that with already high debt to GDP levels and fiscal deficits, ‘Brazil will be unable to cushion the economic fallout from the Covid-19 spread, or that any attempt to do so could set off unsustainable debt dynamics.’
OVERLOOKED INDIA & INDONESIA
In Asia, Fraser and Jia are now more positive on India after the market pull back. The reason is ‘we see its economy as more resilient through time. Asian countries, in particular Indonesia, offer very attractive entry points on a 12-month view.’
What about China? Well, Fraser describes the picture as ‘more mixed: the economy is normalising and the authorities are supporting the local activity. However, we have not yet seen the full impact of export reduction hit, and geopolitical tensions are rising with the US and other western democracies. The market has also been very resilient making it prone to profit taking.’
Fraser remains cautious on North Asian markets ‘as key providers to the global supply chains, in particular through technology. In EMEA, we think the oil shock will eventually find a resolution, but it won’t be soon. Russian equities still offer more resilience in this stand-off and we continue to hold high conviction names there.’
ATTRACTIVE ENTRY POINTS
Unfortunately, we have not yet seen the end of the human crisis triggered by coronavirus, yet Fraser reminds investors that ‘markets are forward looking. Valuations are at historical lows, Emerging Markets’ stock markets and currencies have corrected heavily, and we believe Emerging Markets equities offer attractive entry points.’
Volatility is creating real opportunities, says Fraser, who is moving portfolios away from defensives and buying what he thinks are over-sold stocks, sectors and countries.
‘We are funding these by reducing cash exposures and locking profits in our recent winners, in particular healthcare, but also China - which has been extremely resilient in this sell off. Whilst we think China will continue to show resilience in the short term, due to its unprecedented stimulus package, we now think that market outperformance will come from other countries.’
