27th October 2015
Emerging market equities and bonds have reached such distressed valuations that they now present a buying opportunity for investors, Kames Capital’s chief investment officer Stephen Jones argues…
While the group has been underweight emerging markets for the majority of 2015 because of the headwinds facing the asset class, Jones said the company’s funds had been increasing their exposure back to a neutral position in recent weeks.
The valuations on emerging market equities have got to a point where they now look attractive.
Emerging markets have become distressed in terms of their prices, and while the headwinds from a strong US dollar and slowing global growth remain, the bad news is largely in the price now.
A neutral position on emerging market equities is the sensible place to be in Q4 and then investors need to reassess next year, taking into account data from the US which will dictate when interest rates rise.
As well as increasing its exposure to emerging market equities, Kames’ has also become more positive on hard currency emerging market debt.
Spreads on some of the hard currency bonds have become too attractive to ignore, and so there has been an opportunity to increase our exposure there. Being underweight at these levels is too expensive now.
With US growth slowing, it may mean that interest rates remain lower for even longer. Therefore, equities in general look attractive, especially after the recent pullback across most markets.
We are overweight equities as a house, as valuations are now at more attractive levels. Companies that can deliver earnings will continue to be rewarded.