EM equities: less popular markets offer long-term opportunities

05/06/2018

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​Glen Finegan, Head of Global Emerging Market Equities, believes that less popular markets such as South Africa offer better value than many Asian opportunities.

Where are you finding the most exciting opportunities within emerging markets?

For some time we have been highlighting our view that valuations of many good-quality Asian companies are too high and unsurprisingly this is reflected in our current positioning.  Meanwhile, significant changes have occurred recently in South Africa where emerging middle class voters are demanding less corruption and improved living standards. Following Cyril Ramaphosa’s appointment as President we have observed an improvement in the confidence of South African company management teams and expect to see private investment pick up after a long period of stagnation.  We view these developments positively and believe that South Africa provides a fertile ground for investors focussed on the long term.

Has economic reform in China influenced portfolio positioning?

The portfolios we manage currently have limited investment in Chinese equities. This is due to the presence of a large number of state-controlled enterprises, which raises concerns about the company’s alignment with minority shareholders. Against a government policy backdrop focussed on debt reduction, there is also a significant risk of large, cash-rich private corporations being required to perform ‘national service’ rather than focusing on sustainable growth and returning profits to shareholders. We have also observed some questionable capital allocation decisions by China’s leading internet companies during the last 12 months.  Having said that, while the opportunity set within China for long-term investors with an absolute return mindset has been limited, we are building a watch list of interesting companies listed in China’s domestic ‘A’ share market (foreign investors can also gain access to Chinese companies listed in Hong Kong on the H-share market). Although currently high valuations mean we have yet to invest.

What are your expectations for the asset class?

The past 12 months have generally seen continued enthusiasm for risky assets, including emerging market equities. A number of low-quality and more economically-sensitive company valuations appear to be pricing in a continuation of favourable economic and monetary conditions for a significant period of time.

In our view, financial markets are at risk of being overly optimistic and in the face of this complacency, we continue to believe that it is important to not compromise on quality, maintain a long-term approach and  apply a strict valuation discipline.

We are positive, however, about the prospects that emerging markets offer equity investors on a long-term view. This is due to the opportunity to gain exposure to the strong structural trend of rising living standards in certain parts of the developing world.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

For promotional purposes.


Important information

Please read the following important information regarding funds related to this article.

Janus Henderson Emerging Markets Fund

The Janus Henderson Fund (the ""Fund"") is a Luxembourg SICAV incorporated on 26 September 2000, managed by Henderson Management S.A. Any investment application will be made solely on the basis of the information contained in the Fund’s prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the Fund’s prospectus and key investor information document before investing. A copy of the Fund’s prospectus and key investor information document can be obtained from Henderson Global Investors Limited in its capacity as Investment Manager and Distributor.

Janus Henderson Investors is the name under which investment products and services are provided by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier).

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

Past performance is not a guide to future performance. The performance data does not take into account the commissions and costs incurred on the issue and redemption of units. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

The Fund is a recognised collective investment scheme for the purpose of promotion into the United Kingdom. Potential investors in the United Kingdom are advised that all, or most, of the protections afforded by the United Kingdom regulatory system will not apply to an investment in the Fund and that compensation will not be available under the United Kingdom Financial Services Compensation Scheme.

Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. Key Investor document is also available in Spanish. All of these documents can be obtained free of cost from the Fund’s registered office in Luxembourg: 2 Rue de Bitbourg, L-1273 Luxembourg”, in Germany: Janus Henderson Investors, Tower 185, Friedrich-Ebert-Anlage 35-37, 60327 Frankfurt am Main, in Austria: Bank Austria Creditanstalt AG, Am Hof 2, 1010 Wien, in Spain: offices of the Spanish distributors, a list of which may be obtained at www.cnmv.es (Janus Henderson Fund is registered with the CNMV under number 259); in Belgium: Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; in Singapore: Singapore Representative Janus Henderson Investors (Singapore) Limited, 138 Market Street #34-03/04 CapitaGreen, Singapore 048946; and in Switzerland from the Swiss representative: BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, CH-8002 Zurich who are also the Swiss Paying Agent.

Please note that Isle of Man investors will not be protected by statutory compensation arrangements in respect of the Janus Henderson Fund. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Information on this document is on Henderson's best endeavours.

Specific risks

  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • Emerging markets are less established and more prone to political events than developed markets. This can mean both higher volatility and a greater risk of loss to the Fund than investing in more developed markets.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.

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