Global emerging markets at last began to show some signs of the often heralded decoupling from the United States and the rest of the developed world in the three months to the end of February, boosting the confidence of fund managers, according to Standard & Poor’s Fund Services’ latest sector update, available at www.funds.standardandpoors.com.
“Investors in emerging market equities lost money in this period but significantly less than investors in developed markets,†said S&P Fund Services lead analyst Alison Cratchley, explaining that the median global emerging markets fund lost 5.9%, just over half the 11% loss on the median global developed markets fund.
“Fund managers remain relatively positive on the longer-term outlook for emerging markets,†said Cratchley, identifying Asia as their preferred region, mainly because of China. She gave the example of Mike Shiao and Samantha Ho, who manage the S&P A rated Invesco Funds – Greater China Equity Fund. They acknowledge that China will inevitably be affected by the global economic slowdown. However, like many other managers, they are confident that the Chinese government will devote significant resources to sustaining economic growth, so as to prevent unemployment.
The team in charge of the S&P A rated Franklin Templeton Investment Funds – Templeton BRIC Fund thinks China could lead the way in a substantial recovery by emerging markets in 2009. They believe developments in the Chinese economy could influence other Asian economies, since the volume of exports from the rest of Asia to China exceeds that of exports to the US and Europe.
S&P Fund Services found less consensus on Russia. Nick Barnes, co-manager of the S&P AAA rated Traditional Funds – Eastern European Fund, has increased exposure based on a favourable view of the oil price, which he expects to reach $80 a barrel in H2 2009, as well as on valuations. Michael Konstantinov of the S&P A rated Allianz-dit BRIC Stars & Allianz RCM BRIC Stars Fund has also increased Russian exposure, believing that Russian banks will overcome their difficulties, that the oil price is stabilising and that the news on corporate governance is becoming less negative.
In contrast, at the S&P AA rated Aberdeen Emerging Markets Fund and Aberdeen Global – Emerging Markets Equity Fund, Russia is the most significant underweight on their concern about corporate governance and legal uncertainty.
Latin America, and in particular the less export-dependent economies like Brazil, is relatively well placed to weather the current global economic slowdown, according to Katy Dobson of the S&P A rated Threadneedle Latin America Fund. However, she notes that as the outlook for Latin American economies and stock markets is closely tied to commodities, the strength of demand from developed markets and China is the key variable.
“A theme common to many portfolios around the world is defensive positioning and focusing on large-cap stocks with strong balance sheets,†said S&P Fund Services’ Cratchley, noting that companies like this are seen as well placed to gain market share and emerge as winners from the current crisis. “As they often have a domestic focus, they are likely to benefit from government measures to stimulate the economy,†she said.
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Standard & Poor's Fund Services is one of the world's leading providers of qualitative, forward-looking fund research, including fund management ratings on over 2,200 funds worldwide. These ratings - unlike past performance rankings - are based on in-depth analysis of the stability of a fund's parent group, the appropriateness of its investment policy, and the sustainability of its performance. They are continuously monitored and updated reports are posted to www.funds.standardandpoors.com
Funds rated in the AAA to A categories demonstrate to Standard & Poor's Fund Services an ability to provide above average returns over a long-term period (relative to funds in the same sector) along with a strong ability to adhere to a consistent investment process. The differentiation in the rating categories is based on the consistency of a fund's performance relative to its own objectives along with Standard & Poor's assessment of the investment process and management. The rating is based on an evaluation of qualitative (management, investment process, and organisation) and quantitative (historic performance, portfolio construction, and volatility) factors, which contribute to long-term performance. The rating does not address the market, credit or counterparty risk of a fund, nor a fund's suitability as a counterparty or obligor.
