Are emerging market investment trust discounts a buying opportunity? Three trust managers discuss the sector

3rd April 2014

Emerging markets have proved to be an out of favour sector in the past year, but the average Global Emerging Markets investment company is up 257% over ten years.

The Association of Investment Companies points out this makes the sector the third top performing investment company sector after UK Smaller Companies and European Smaller Companies.

The sector currently on an average discount of 9% against a wider industry average of 4% and hosted a discussion with three EM managers to ask is this a buying opportunity?

The managers are Matthias Siller, Manager of Baring Emerging Europe and Austin Forey, Manager of JPMorgan Emerging Markets and Dr Slim Feriani, Manager of Advance Developing Markets and Advance Frontier Markets.

Austin Forey, Investment Manager, JPMorgan Emerging Markets, says: “For emerging markets in the current environment, it is important for investors to remember the long-term story. When pessimism about an asset class is this strong, usually that is a compelling opportunity to buy at an attractive price if you have a long-term time horizon (5 or more years).  While caution is merited – cheap assets can always get cheaper, after all – it is worth remembering that beyond the noise there is a compelling case for higher risk emerging markets.  There is always the potential for downside but we are in a historically cheap zone.”

Emerging Europe – dividend yields now rank amongst highest globally

Matthias Siller, Manager, Baring Emerging Europe, says: “While Emerging European Equity markets have been negatively impacted by the effects of US liquidity tightening and geopolitical volatility (mainly in Turkey and Russia), we believe positive developments on the corporate governance front and in earnings generation have largely gone unnoticed. In our opinion, the region is the most attractively valued amongst Global Equities, after having been consistently de-rated in recent years it now offers good growth opportunities.

“Dividend pay-out ratios have improved over the past couple of years thanks to management teams and majority owners employing more shareholder-friendly policies. While we believe there is room for further improvement, dividend yields now rank amongst the highest globally.”

Tough times or opportunities?

Dr Slim Feriani, CIO of Advance Emerging Capital, manager of Advance Developing Markets and Advance Frontier Markets, says: “So far in 2014, Global Emerging Equity Markets (GEMs) have already experienced net outflows of $43 billion, almost as much as the cumulative net outflow level experienced for the entire year of 2011. There has recently been a glimmer of hope that this trend of net outflows from GEMs may start to ease; last week dedicated Emerging Markets ETF funds reported their first week of inflows since November 2013.

“The discount in emerging markets valuations relative to developed markets is back to levels last seen in 2004 and, historically, this has represented an exceptional entry point for patient, long-term, contrarian investors.  Whilst the Ukrainian crisis is yet another reminder of the risks that all investors must consider and be prepared to withstand when investing in emerging markets, we still see some interesting opportunities, particularly in Asia, where events like the Indian elections may prove to be a strong catalyst for the markets.”

Rapid growth for frontier markets?

On Frontier Markets, Dr Slim Feriani, CIO of Advance Emerging Capital, manager of Advance Developing Markets and Advance Frontier Markets, says:“In terms of flows, frontier markets are on track to outpace the inflows seen in 2013.  We have been saying for some time that the investment opportunity in frontier markets is similar to the opportunity that existed in GEMs 20 years ago.  Many frontier countries are demonstrating strong sovereign balance sheets, favourable demographics and rapid growth.  Annual GDP growth for frontier markets is expected to be above 5% for the next decade and we continue to see numerous compelling valuations, due to valuation anomalies and inefficiencies in the wider frontier universe.”

Share price total return on £100 lump sum

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