NEW YORK: After emerging market stocks led global equity markets lower in a brutal 2018, some US-based fund managers are betting that asset class may have largest rebound in new year.It may not look likely at moment, given that an economic downturn in China prompted iPhone-maker Apple Inc (AAPL.O) to lower its quarterly revenue forecast on Wednesday for first time in a decade.
Its shares slumped nearly 10 per cent after Chief Executive Tim Cook blamed US-China trade war and economic deceleration, prompting broad selloffs around world following day.Yet fund managers from Westwood Holdings Group, GMO, T.
Rowe Price and Causeway Capital Management are among those who are betting that emerging market stocks will post outsized gains in 2019.
They cite a combination of compelling valuations and a likely decline in value of dollar that will help accelerate economic growth.As China continues to bear brunt of US President Donald Trumps focus on trade tariffs, fund managers are expecting that shares in countries like India, Thailand, Peru, and Brazil will outperform China-dominated emerging market benchmark index.We want to lean into fear in markets, said Sebastien Page, head of asset allocation at T.
Rowe Price.
He expects emerging markets will outperform in year ahead as Federal Reserve curtails its pace of interest rate hikes and dollar subsides.When you have a recovery in risk assets, those that have been undervalued can snap back most, he said.Emerging markets have been in a bear market since September, placing them already four months into deep declines that rocked US equities market in December.
The average bear market in emerging markets has lasted 220 days and posted a decline of 32.4 per cent, or about 7 percentage points more than roughly 25 per cent drop in MSCI Emerging Market Index since it hit near-record highs last January, according to data from Ned Davis Research.While emerging markets started year with another roughly 1.7 per cent loss over first two trading sessions, fund managers say they are increasing their bets on stocks in countries that are among most beaten-down, expecting they will have largest rebound if and when a global bull market in equities resumes.Im actually a lot more positive than this time last year because there are tremendous opportunities to add to high-quality names in insurance and some banks, said Patricia Perez-Coutts, portfolio manager of Westwood Emerging Markets fund.She has been increasing her stakes in South Africa, Thailand and Peru, she said, with largest positions in companies such as South African life insurance company Sanlam Ltd (SLMJ.J) and Credicorp Ltd (BAP.N), Perus largest financial holding company.
Shares of Credicorp are up 8.8 per cent over last 12 months, while shares of Sanlam are down 3.9 per cent over same time.Perez-Coutts has been underweight China since start of last year, though she is starting to wade back in by buying shares in gaming and e-commerce companies that have plunged.Though Chinas overall economy may not be growing as strongly as it did in past, there are still areas of strong growth, she said.Joe Gubler, a quantitative portfolio manager at Causeway Capital Management, says emerging markets remain a compelling opportunity with a forward price-to-earnings ratio of approximately 10 even after recent declines in US market have pushed forward price-to-earnings ratio of SP 500 to slightly below 15 for first time in about 5 years.As a result, Gubler has been increasing his positions in small-cap companies in India, as well as energy companies that have sold off as price of oil has tanked.
He has also been increasing his position in companies that could benefit if there is a breakthrough in global trade talks.The market is not in a mood to give emerging market stocks much credit, he said.
If you look at chart, emerging market index is sitting at about same place it was in 2009.If you had a let-up in trade and interest rates, you could see a decent-sized rally.