WHO WILL EMERGE UNSCATHED?
With such a glut of markets to choose from there is little consensus over which emerging markets will come out unscathed and grow. “We are most excited by countries which are both pursuing comprehensive economic liberalisation policies and are relatively isolated from global risks,” Stocker says. “This would be countries like Serbia, which continues to attract remarkable high levels of foreign direct investment as a result of its economic liberalisations and strong leadership on economic liberalisation efforts.
“Iceland is an off-index market which is growing remarkably fast, has a strong external accounts position, yet is still in the 20th century when it comes to corporate governance, making it a suitable country for emerging and frontier market investors,” he adds, pointing out that Icelandic companies are embracing efforts to improve corporate governance.
There is one country that Stocker has a soft spot for. “Vietnam is sensitive to trade policies and tariffs, but has actually just become the beneficiary of remarkable trade tariff reductions with the implementation of a new trade agreement with the EU.”
On a five-year view, Reed believes: “India remains attractive as the government’s reforms and investment in infrastructure help foster growth in the private sector and utilise the abundant spare resources in the economy.
Increasing financialisation, as individuals get access to bank accounts for the first time, thanks to the government’s biometric ID system rolled out over the past couple of years, offers many opportunities for increased economic inclusion and growth,” he adds. “India is also a much less export-dependent economy, similar to Indonesia and the Philippines.”
Reed is also interested in Argentina and Nigeria. “They are coming from difficult places economically, but have significant potential to improve in the next few years if the global environment remains supportive.”
Patnaik also has a preference for emerging market countries with a reform anchor. “This is because we believe that generating alpha this year will be determined by “stock picking” rather than simply taking long beta positions. As such, we continue to like Argentina and Ukraine (though Ukraine is experiencing a touch of “reform fatigue”).
Though we have concerns with the lack of a fiscal anchor in Brazil (i.e. the on-going delays to pension reform), Petrobras has been making meaningful progress with regards to improving transparency, asset sales, raising cash and reducing leverage.”
In Asia, India is continuing its reform process. He also favours South Africa as the political situation has improved and Nigeria where “rising oil prices are supportive of the economy”.
Boudewijns prefers “markets and sectors, which have a more cyclical exposure and can benefit from a global recovery, like commodity producers, energy, financials, industrials and not to forget…technology or countries like China, Brazil, Korea, Taiwan and Russia.”
Jackson concludes that emerging markets with the best demographics are most likely to withstand the global economic cycle and the threat of a trade war. Such considerations suggest that Asia, ex-China and Japan, should be well placed over the coming decades, such as India, for example.
“Beyond that Africa could be the only story in town,” he adds. “With Africa forecast to contain 41% of the world’s working age population by 2100, versus 13% in 2015 (on UN median variant estimates), it will become not only the bread basket of the world but also its factory.”
