EM equities: Selective opportunities in less popular markets

27/11/2018

Download


Glen Finegan and Ian Tabberer, respectively Head of and Portfolio Manager on the Global Emerging Market Equities Team, believe that South Africa offers compelling long-term opportunities for investors focused on valuation.


What are the key themes likely to shape markets in 2019?

We think a year is a very short time within the lifespan of an investor and believe in maintaining a long-term investment time horizon of at least five years when assessing the value of companies. One of the key things we are interested in is long-term demographics and how they are going to affect global emerging markets. According to the United Nations China is likely to have an ageing population, with the number of people over the age of 65 expected to triple by 2050 to approximately 330 million. We think this is likely to challenge the growth opportunities in China. This compares to what we see as a positive demographic opportunity in Africa, where the overall population is expected to double over the same time period that China is going to be facing challenges. This is a key long-term theme that we are looking to take advantage of for our portfolios.


Where do you see the most important opportunities and risks within your asset class?

For a long time we have been highlighting that valuations for businesses and stocks within Asia look expensive due to the level of optimism and businesses that have performed well recently. Our focus is on companies for which we think the opportunities have been less-highly valued by the market. We have been shying away from those stocks that are related to the Indian consumer. These are often high-quality businesses with a great long-term opportunity but the valuations appear very high. For some Indian consumer staples companies an investor would in effect have to pay more than half a century’s worth of earnings to invest at current valuations. In comparison, there are businesses with similar growth prospects in South Africa at a lot lower valuations so we think that is an attractive place for us to invest over the long term.


How have your experiences in 2018 shifted your approach or outlook for 2019?

The market experience with regards to currency mismatches for global emerging market (GEM) stocks reminds us once again of the importance of investing in businesses that are very conservatively managed. We look to invest alongside management teams that are aligned with our own long-term interests. With very low interest rates in developed markets a number of GEM corporate managements teams appear to have taken on significant levels of currency risk, borrowing money in foreign currencies at a low interest rate and effectively making a ‘bet’ on the rise or fall of the exchange rate. We do not believe this adds to the strength of a business but it reminds us of the importance of investing alongside cautious, sensible management teams that do not take on undue risks.



Which themes have the potential to redirect markets in 2019? Download our Infographic to find out




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

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.

Risk rating

Janus Henderson Emerging Markets Opportunities Fund

Specific risks

  • 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.
  • This Fund may have a particularly concentrated portfolio relative to its investment universe or other funds in its sector. An adverse event impacting even a small number of holdings could create significant volatility or losses for the Fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • The Fund may use derivatives with the aim of reducing risk or managing the portfolio more efficiently. However this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • Emerging markets expose the Fund to higher volatility and greater risk of loss than developed markets; they are susceptible to adverse political and economic events, and may be less well regulated with less robust custody and settlement procedures.
  • 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.
  • If the Fund holds assets in currencies other than the base currency of the Fund or you invest in a share class of a different currency to the Fund (unless 'hedged'), the value of your investment may be impacted by changes in exchange rates.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.

Risk rating

Share

Important message