Despite the recent significant downturn in emerging markets, the structural and long-term opportunities for investors still remain, says Martin Currie.
In a recent update titled Looking to the Long-term, Martin Currie head of global emerging markets, Kim Catechis, argued that while it’s been a “torrid time” for investors, emerging markets are nonetheless appealing when compared to other asset classes.
“Despite short- to medium-term global growth challenges, the structural story for global emerging markets is valid,” he said.
Mr Catechis said the recent downturn – whereby 18 per cent was trimmed off the MSCI Emerging Market index over six months – is a normal part of the cyclical nature of the asset class.
“This cyclicality, manifesting itself via the current downturn, seems to have overwhelmed the long-term structural growth story in the minds of some investors.
“In our view, it would be limiting to confuse a temporary cyclical crisis with a permanent shift in the long-term trend,” said Mr Catechis.
According to Mr Catechis, investors should not dismiss the structural factors underpinning emerging markets.
He pointed out that favourable demographic trends provide a young and growing workforce. Further, many countries in the emerging world are also at an advantage when it comes to technology and natural resources.
Mr Catechis also said that emerging market countries are in a much better position than in the past, where authorities are making strides in terms of structural and institutional reforms.
“What this means is that we see a mismatch between the pessimism pervading emerging market sentiment in this current environment against the positive long-term view we have for the asset class.
“This is the kind of situation where valuations become very interesting,” he said.
Mr Catechis concluded that an individual business analysis is appropriate when investing in emerging markets – “driven typically by the sustainable compounding of corporate cash flows by competitively positioned and robust companies.”
“Although these companies aren’t immune to economic downturns, their market positioning shouldn’t be compromised.”