The world’s five cheapest stock markets and the funds investing in them
Four of the five cheapest stock markets in the world today are in emerging markets, according to...
According to a recent survey commissioned by Franklin Templeton Investments, UK investors are more positive about the prospects for emerging markets, than they are for the UK stock market: while only 16%* of UK investors expect the UK stock market to have higher returns in 2019 than it did in 2018, one in three (34%*) expect emerging markets investment returns this year to be higher than they were last year.
Higher returns are perhaps not going to be that hard to achieve: emerging markets fell by some 10%** last year – under performing developed markets, which also fell over the 12 months, but by a smaller amount: 3.8%**.
Emerging markets, on aggregate, have had a bad decade. In the past 10*** calendar years, they have suffered loses in four, while developed markets, buoyed by help from central banks, have only experienced two negative years.
While this may not sound much of a difference, the falls have been greater and, when added up, have been significant. The cumulative performance of emerging markets over the whole decade has been 106.8%^ – less than half the 220.1%^ achieved by developed markets.
And although perceptions of emerging markets may be changing, as Franklin Templeton points out, there is more room for progress: almost half (49%*) of all UK investors are not currently invested in emerging markets at all. Those that are, are focusing on pockets of potential opportunity in China (26%*), India (26%*) and Brazil (18%*).
The team at FundCalibre has mixed views about emerging markets. In the short term, there is the continued risk of US/China trade wars, which are having a negative impact on sentiment. However, the valuations of the stock markets are looking reasonable. In the long term, the team still sees exciting opportunities.
Our preferred emerging markets are similar to those identified in the survey: India and Latin America.
Looking at India first, the country has just held the largest elections in world history. 900 million people were eligible to vote and their choice was Narendra Modi, the incumbent prime minister. The magnitude of his win was unprecedented, with his share of the vote rising some 10% – one of the biggest increases in history, according to Fidelity.
With a clear majority he now has a mandate over the next five years to continue with his pro-business policies – some of which have been tough, but necessary.
The macroeconomic outlook is very positive with 7%+ growth expected this year, inflation and interest rates under control, good demographics and much needed money being spent on infrastructure: India is now building 27km of road every day compared with 12km before Modi’s previous elections, for example.
We also like Latin America, where for the first time in many years, five out of six of the main economies have pro-business governments. This, combined with the fact that their stock markets and currencies look good value, makes the region active.
Brazil, the largest economy in Latin America, is emerging from one of its longest periods of recession with solid balance sheets, more efficient cost bases and therefore ready to present increasing profitability, as growth finally resumes.
Read more about Aberdeen Latin American Equity
Of course, emerging markets can be volatile and many investors may not be comfortable investing in a single country or region. For those investors, who are considering increasing their weighting to emerging markets, a global emerging markets fund may be a more attractive option.
Elite Rated Lazard Emerging Markets fund currently invests in 76 different companies, 57.5%^^ of which are from emerging Asia, 13.3%^^ emerging Europe, 12.5%^^ emerging Latin America and 9.2%^^ emerging Africa.
Elite Rated Magna Emerging Markets Dividend fund in contrast invested in 41 different companies and has 64%^^ invested in Asian companies, 11.8%^^ in Latin America, 7.9%^^ in Russia and 4%^^ in South Africa.
*An online survey commissioned by Franklin Templeton Investments of 1,379 UK investors between 18-26 February 2019.
**Source: FE Analytics, total returns in sterling, calendar year 2018, using MSCI Emerging Markets and MSCI AC World indexes.
***Source: FE Analytics, total returns in sterling, calendar years 2009 to 2018 inclusive, using MSCI Emerging Markets and MSCI AC World indexes.
^Source: FE Analytics, total returns in sterling, 10 years to 28 May 2019, using MSCI Emerging Markets and MSCI AC World indexes.
^^Source: Fund fact sheets, 30 April 2019.