Citywire Selector - For Professional Investors

Register to get unlimited access to Citywire’s fund manager database. Registration is free and only takes a minute.

Carmignac: EMs are out of the doghouse

Carmignac: EMs are out of the doghouse

Knee-jerk pessimism in emerging markets may lead investors to underestimate what has become a compelling investment universe, according to Carmignac’s Didier Saint-Georges.

'Today is definitely the wrong time for investors to turn away from the emerging market space,' he told Citywire Selector.

The firm currently has 16.8% of its €60 billion assets under management in emerging markets stocks and bonds, and Saint-Georges highlighted the progress the sector has made over the past four decades.

'According to a recent analysis by Bank of America Merrill Lynch, in the six major bull markets over the past four decades, EM stocks have on average risen to three times the level of developed world equities. And those bull runs, the analysts have found, lasted an average of three to four years.'

At a granular level, the firm currently has 9.13% of assets in its flagship Patrimoine fund in emerging markets.

Saint-Georges said investors need to sit up and take notice of the developing world, especially at a time when it is beginning to recover from five years of lagging other economies.

‘Speculation about the underlying technical issues always sparks a good deal of lively, yet inconclusive, debate. Judgments vary widely on points like market valuations, the risk of a pronounced hike in US interest rates and the prospects for dollar appreciation.’

‘In contrast, fundamental analysis suggests that the emerging economies are at last making their way out of the doghouse in which global investors have confined them since late 2010.’

Checking on China

Within its EM exposure, the firm also has 2.3% of assets in China and Saint-Georges said the country offers tremendous opportunities for investors to capture strong lasting growth.

‘While many pundits are focusing on the recently held 19th Communist Party Congress, which served to anchor the policies of the Xi Jinping era, the relevant news for investors lies elsewhere. What matters from their standpoint is that the economic reform process is continuing.

‘A lot of state-owned enterprises – the core of China’s old economy – which suffer from huge overcapacity and excessive leverage, are now restructuring. Some have been shuttered; others are drastically scaling back production capacity.’

This, according to Saint-Georges, will result in higher profit margins and lighter debt loads. However, he said such manufacturers are not the best investment option.

'Essential reforms typically cause considerable pain at first, as the experience of Argentina makes strikingly clear,' he said.

'It is only now, two years after President Mauricio Macri was elected and undertook such crucial reforms, such as scrapping ineffective subsidies that the Argentine economy is beginning to pick up steam.

'In China, the chief benefit of an improved outlook for the old economy is to reduce systemic risk and gradually lessen the country’s excessive debt burden, which many view as a veritable time-bomb.'

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Events
  • Citywire Alternative Ucits Retreat 2017

    Citywire Alternative Ucits Retreat 2017

  • Citywire Milan 2017

    Citywire Milan 2017

  • Citywire Paris 2017

    Citywire Paris 2017

  • Citywire Deutschland 2017

    Citywire Deutschland 2017

  • Citywire DACH 2016

    Citywire DACH 2016

  • Citywire Italy 2016

    Citywire Italy 2016

  • Citywire Milan 2016

    Citywire Milan 2016

  • Citywire Alt Ucits 2016

    Citywire Alt Ucits 2016

  • Citywire Berlin 2016

    Citywire Berlin 2016

  • Citywire Switzerland 2016

    Citywire Switzerland 2016

  • Citywire Amsterdam 2016

    Citywire Amsterdam 2016

  • Citywire Montreux 2016

    Citywire Montreux 2016

  • Citywire Deutschland 2016

    Citywire Deutschland 2016

  • Citywire Latin America 2016

    Citywire Latin America 2016

  • Citywire Milan 2016

    Citywire Milan 2016

  • Citywire Munich 2016

    Citywire Munich 2016

  • Citywire Paris Alt Ucits 2016

    Citywire Paris Alt Ucits 2016

  • Citywire Zurich Alt Ucits 2016

    Citywire Zurich Alt Ucits 2016