4newsletter Q1 2016

4
EMERGING MARKETS:
RIDING THE POST SELL-OFF RECOVERY
History Suggests Outsized Emerging Market
Rewards After Heavy Falls
Investors tracking recent market headlines and poring over
data releases from around the globe are more than likely to be
considering their portfolio’s exposure to emerging markets (EM)
at the moment.
EM equities and currencies took a battering last year amid a
commodities rout, oil price falls, a strengthening USD and the
increasing inevitability of a US rate rise.
On top of this, very grave fears over the state of the Chinese
economy and what a slowing growth outlook might mean for
other developing economies added to increasingly gloomy
sentiment on the prospects for EMs. The MSCI EM Index (USD)*
was just under 15% down for 2015.
And the start of this year has done little to improve this
sentiment. Chinese stocks plunged in January as the extent
of the Chinese economic slowdown became clearer and signs
the global economy is continuing to struggle have led to lower
growth predictions for emerging economies and warnings from
global financial institutions such as the
IMF that 2016 will be a “challenging”
year for EMs.
comes in Latin America. Local stocks have plunged over the last
17 months, dropping 51%. But the economies in the region have
continued to grow, posting an annualized growth rate of 2.4%
over the last three years. They also have low levels of public debt
and rising real wages have seen consumer purchasing power and
consumption go up in recent years.
The picture for many of the industries across the region is a
bright one - Mexico has one of the world’s most competitive
manufacturing sectors and has become a key global autoproducer.
The team at INCA Investments LLC, Latin American investment
specialists and portfolio managers for the WIOF Latin American
Performance Fund, believe now is an excellent time to invest in
the region’s equities.
Fernando X Donayre, CEO of INCA Investments, said: “We believe
the current market conditions offer an attractive opportunity
to invest in Latin American stocks. Our view is supported by an
outlook for solid economic growth for the region and attractive
valuation levels for best in class franchise companies.”
MSCI EM Latin America NR USD
But despite this apparent slew of bad
news, analysts and fund managers
working in emerging market regions say
that investors should look beyond the
current short-term headlines.
They say that while economic conditions
may not be at their best and that
many markets have seen heavy falls
of late, EM fundamentals remain solid
and the current climate offers good
opportunities for investors considering
EM stocks.
One of the best illustrations of this
120%
100%
80%
60%
40%
20%
Performance in USD
2007 - 12
2008 - 03
2008 - 06
2008 - 09
2008 - 12
2009 - 03
2009 - 06
2009 - 09
2009 - 12
2010 - 03
2010 - 06
2010 - 09
2010 - 12
2011 - 03
2011 - 06
2011 - 09
2011 - 12
2012 - 03
2012 - 06
2012 - 09
2012 - 12
2013 - 03
2013 - 06
2013 - 09
2013 - 12
2014 - 03
2014 - 06
2014 - 09
2014 - 12
2015 - 03
2015 - 06
2015 - 09
2015 - 12
2016 - 02