India is the best positioned of the so-called BRIC countries to cope with the current challenges affecting emerging markets, according to Prashant Khemka.
Citywire AAA-rated Khemka, who runs the Goldman Sachs BRICS Portfolio and Goldman Sachs India Equity Portfolio funds, thinks the oil price decline, the fall in commodity prices and the slowdown in industrial China are the biggest threats to emerging markets.
‘Russia has challenges from oil prices and non-oil commodities besides its own idiosyncratic issues of geopolitical issues. Brazil is getting impacted by the same oil and non-oil commodity price declines globally and grappling with its own domestic political issues,’ he told Citywire Selector.
‘China is growing much slower than in the past; it is a dichotomy. While not as fast as five-to-ten years ago, the consumer economy is still growing robustly compared to most other countries in the world. Industrial China is growing much more slowly than the rest of the world.’
In contrast to China, Russia and Brazil, Khemka said India's outlook is more upbeat. Sentiment surrounding the Indian government is currently positive and the economy is growing, while he said it is less susceptible to commodity price slumps and the slowdown in industrial China.
‘India is one of the largest importers of oil, importing three quarters of its net oil requirements. Even the net non-oil commodity price decline is beneficial to the Indian macro environment, which has helped contain inflation. India's links to industrial China are very minimal.’
‘Hence these three common factors that are the most negatively impacting the EM world, India is uniquely positioned to be a beneficiary of most of these,’ he said.
Khemka warned of the dangers of automatically combining all the emerging markets into one category. While generalisations can be made, investors should remember to consider different factors affecting each country.
‘To talk about the emerging macro environments is often like talking about the world weather. You can't say if the world weather is good or bad or warm or cold. You have to talk about individual cities. Similarly it is the case with emerging markets, there are 25 of them.‘
‘In each of these countries, there are individual idiosyncratic factors which are more dominant drivers than common factors that maybe impacting,‘ he said.
The Goldman Sachs BRICs Portfolio fund lost 22.8% in US dollar terms over the three years to the end of February 2016. This compares to a fall of 27.7% by the MSCI BRIC TR USD over the same timeframe.