Investors in emerging markets are increasingly fixated on short-term returns and are overlooking the huge growth potential of more stable longer-term investment, Citywire A-rated Laurent Saltiel has said.
Saltiel, who is chief investment officer for EM growth at AllianceBernstein, said people could be missing out on superior returns by chopping and changing instead of finding stable growth.
‘The average holding period for NYSE stocks has halved since the 1970s to less than two years. Turnover is even higher in emerging markets, with the average holding period across five key Asian markets shrinking to less than a year.’
‘With a patient and persistent perspective on the future, investors can cut through the short-term noise to discover reliable sources of superior long-term funds,’ Saltiel told Citywire Selector.
Slowing GDP growth in developed markets has challenged companies to produce durable growth, while EM companies are operating in a more favorable economic environment.
For instance, Saltiel said, the top 20 fastest growing consumer-staples companies in the world are EM businesses, with nearly half in India or Indonesia.
Here Saltiel is exposed to IT-based Asian companies, such as Taiwan Semiconductor (6.11% of his holdings) and SK Hynix (4.27%), among others.
Saltiel said the best means of recognising a sustainable and promising company to invest in is to focus on a discounted cash flow analysis, which estimates the intrinsic value of a business by calculating the net present value of its future cash flows.
Saltiel’s research indicates that a fluctuation of 1% in growth rate can alter the net-present value by a mere 3% between years one and three, however, when compared to a 1% alteration in years four-to-10 this could alter the NPV by up to 13%.
The AllianceBernstein Emerging Markets Growth Portfolio has over 40% of its holdings invested in Chinese and Indian markets, focusing largely on IT (35.75%) and financials (29.71%).