Portfolio manager of global growth equity strategy at T. Rowe Price, Scott Berg, said emerging markets are frequently viewed as a “homogenous asset class despite their significant economic and political differences”.
“That view has led to periods of ebullience and despair for emerging markets, with periods of outperformance and underperformance relative to developed markets,” said Berg.
“Investors’ disenchantment with emerging markets in recent years has been extreme."
However, he said, investors who turn away from emerging markets based on their recent performance are “overlooking opportunities that should provide superior returns in the years ahead".
It is important to remember though that wide economic disparities exist between emerging nations, Mr Berg said.
“While Latin America dominated performance over the past decade, bolstered by rising energy and other commodity prices, it has significantly trailed emerging Asia in recent years,” he said.
Demographics are also an important consideration.
“Demographics are not uniformly attractive in the emerging world, but several countries in south east Asia, the Middle East, and Africa have relatively young, growing populations that are generating and spending wealth,” he said.
Mr Berg said quality of management is another factor that varies widely in the emerging world.
“India, for example, is loaded with western-educated, business-savvy, owner-entrepreneurs who tend to have big stakes in their businesses, but corruption at the government level remains an issue,” he said.
“In Russia, Brazil, and China, it is more mixed, with a combination of state influence and policies that are not always shareholder-friendly.”
T. Rowe Price, Mr Berg said, is focused on quality companies operating in economies that offer higher potential growth with improving GDP per capita, favourable demographic trends, relatively controlled inflation, and prospects for political reform.
“We are particularly encouraged by opportunities in such markets as India, Indonesia, the Philippines, Turkey, Peru, Mexico, and in such emerging frontier markets as Nigeria, Vietnam and Myanmar,” said Mr Berg.
He added that the recent election of Narendra Modi in India has created a more growth and business-orientated government.
“India has its economic and political challenges, but it has the potential to replicate what China achieved over the last 20 years,” he said.
Meanwhile, the Philippines offers a “well run economy with a balance of payments surplus and moderate inflation” while Indonesia is moving in the right direction with new political leadership, Mr Berg said.
