Insync Fund Managers head of research and sales, Marcus Tuck, told InvestorDaily that emerging markets generally suffer from the same investor flight when they become concerned about emerging market risk.
“By exposing their portfolios to global stocks that are heavily exposed to consumer spending in high-growth economies such as China, investors have the opportunity to leverage higher [earnings per share] growth over time,” Mr Tuck said.
“We want the exposure to the emerging consumer in these various markets but we don’t actually like the volatility that comes from investing directly in those markets,” he said.
“That’s why we prefer to own the global multinational or strongly branded companies domiciled in developed markets where the government standards tend to be higher, management is more focused on shareholder returns and you tend to get less volatility than you do in direct emerging markets which are subject to investor flight at the smallest tremor.
“And it could start in the Ukraine, it could start anywhere.”
The ongoing crisis in Ukraine has hurt emerging markets more than developed economies and is causing some investors to flee their funds, according to Instreet managing director George Lucas, who said that the BRIC (Brazil, Russia, India and China) concept is the favoured way of investing in emerging markets.
“A lot of people, when they invest in emerging markets, invest in BRIC funds,” Mr Lucas said.
“With Russia falling 12 per cent after the first news of the Ukraine crisis, the performance of these BRIC funds will start to look pretty dismal,” he said.
“Obviously there has been a trend already, but that trend of investors getting out of these funds may continue.”
Yet the strong demand for fast moving consumer goods and luxury products prevails across emerging economies.
China's potential market for middle class buyers has gone from 1 million people in 1995 to 37 million today, according to Goldman Sachs.
The investment bank expects it to grow to 256 million in 2025, at a compound annual growth rate of about 14 per cent.
Retiring Goldman Sachs Asset Management chairman and economist Jim O’Neill – who coined the BRIC concept – has added MINT (Mexico, Indonesia, Nigeria and Turkey) to the lexicon.
Australian investors who only own Australian stocks are missing out on the wider range of opportunities available overseas, Insync’s Mr Tuck said, adding that Insync targets strong brands that appeal to consumers all around the world.
“Two sectors that provide good examples are luxury brands and spirits. Companies such as Richemont, Swatch, LVMH, Kering, Burberry, Coach, Hugo Boss and Diageo sell strongly branded products that many consumers around the world aspire to own,” he said.
