Dealer groups have been warned that although investing clients’ money into consumer equities linked to emerging markets seems like a sure bet, not all companies would succeed and some valuations may be getting excessive.
“Many foreign companies find it difficult to win significant market share in emerging markets, even if they have gained a foothold,” Fidelity’s multi-manager growth fund portfolio manager Ayesha Akbar said.
“The most likely to flounder are those that seek to merely replicate their tried-and-tested, home-based strategies. The successful ones are likely to be those more attuned to local customer needs, preferences and business practices.”
Zenith Investment Partners associate director Ben Davis said the growth of the emerging market consumer was a current theme adopted by many international shares managers.
“In particular, managers unconstrained by tracking error restrictions are heavily overweight emerging markets, in particular emerging Asia. These managers also have meaningful allocations to the consumer discretionary sector,” Davis said.
“While these managers have strongly profited from these positions, the question we need to ask ourselves is how much of this anticipated growth is now priced into current market prices.”
Based on Zenith’s analysis, emerging markets were now more reasonably priced based on a range of valuation metrics, he said.
Credit Suisse global head of research for private banking and asset management Giles Keating said companies including Nestle, Metrobank and British American Tobacco, targeting low-income emerging consumers, have gotten a “a little bit ahead of themselves” after surging more than 250 per cent on average in the past five years.
Keating said firms such as Coca-Cola, Colgate, America Movil and Belle International, targeting middle-income emerging consumers, on average were still close to fair value and had good potential even after gaining more than 200 per cent on average in the same time.
