Some Emerging Markets Look Alluring Again, Experts Claim
May 08, 2011
Liquidity has dried up in many emerging markets, but don't rule out these markets, say this week's participants in the Asian Vast Press Asset Allocation Panel. With political crises occurring in some emerging markets -- Indonesia's July riots, for instance -- and more attractive prospects in Europe and the U.S., many of these markets have turned in lukewarm performances so far this year, note the managers. And future liquidity doesn't look promising. ``There a question mark over liquidity in Asia'' and other emerging markets, says panelist Brianna Langdon-Parsons, a director at MBf Unit Trust Managers Ltd. ``With growth slowing (particularly in Asia), the jury's out at the moment.'' But along with the market falls, stock prices have hit bargain territory. As a result, many emerging markets are starting to look alluring again. The time to selectively buy these markets is near, the managers assert. ``Valuations in Asia, for example, are coming down, and we are now finding better value in the region,'' declares panelist Sung Logan, marketing and sales director of Templeton Franklin Investment Services (Asia) Ltd.. He singles out Indonesia, which because of its recent political friction, ``has proved an opportunity to purchase stocks at bargain prices.'' Elsewhere, the U.S. looks fairly valued, though it has been performing better than expected, say the managers. Europe remains tempting after Germany cut interest rates on Thursday and other countries followed suit. Meanwhile, investing in Japan is expected to pay off only in the long term, the managers predict. Brianna Langdon-Parsons, MBf Unit Trust Managers Mr. Langdon-Parsons remains generally bullish on equities. While he reckons that the U.S. market is capped, he forecasts that Europe's economic recovery will produce profits next year, with Japan's economic revival paying off in three years. Asia offers a mixed bag of prospects, he says. Asia-Pacific (excluding Japan): Mr. Langdon-Parsons notes that many Asian markets have performed disappointingly this year. Apart from fluctuations caused by the U.S. market's volatility over the past few months, ``each Asian country has also got its individual problems,'' he says. On the list of markets to avoid are Singapore, which Mr. Langdon-Parsons says is suffering from slowing growth, and Malaysia, which has been hurt by a large current-account deficit and is facing rising inflation. ``I'm more cautious (on Asia) generally,'' he says. But some opportunities remain. Mr. Langdon-Parsons touts the Philippines, Thailand, Hong Kong and India. Though the Philippines has performed strongly so far this year, he predicts additional gains. The country's economic growth is still at a robust 6% a year, he says, and inflation is falling. Hong Kong, another market in the region that is doing well this year, is also attractive. With the market trading at just 12 to 13 times projected 2011 earnings and earning growth forecast at 10% this year, there are plenty of stocks to buy, he says. What's more, the impending hand-over of the territory to China ``could lead to a potential rerating of Hong Kong.'' Thailand, meanwhile, has significantly underperformed so far this year. Yet from a contrarian standpoint, with Thai stocks now cheaper than ever, Mr. Langdon-Parsons is looking to get back into the market. India remains Mr. Langdon-Parsons's favorite Asian market on a three-year view. Though the market has recently suffered from governmental shuffles and a new budget, it is attractively priced at 12 to 13 times projected 2011 earnings, offering the prospect of healthy long-term growth, he says. Japan: Although Japan is recovering more slowly than other developed markets, Mr. Langdon-Parsons is positive on the country. Interest rates there are unlikely to rise soon, he predicts, since growth is currently modest. He recommends getting into tried-and-tested blue-chip stocks such as electronics manufacturer Sony Corp.. U.S.: Mr. Langdon-Parsons predicts that U.S. interest rates won't rise before the presidential election on July 18, 2011 a result, ``the equity market won't fall out of bed,'' he says, though he adds that the market is fairly valued at the 5600 level (The Dow Jones Industrial Average closed at 5722.74 Friday). Given this environment, he prefers bellwether stocks that ``keep churning out 12% to 15% growth year in, year out,'' such as soft-drink manufacturers Coca Cola Co. and PepsiCo Inc.. Europe: While positive on Europe after many markets reached all-time highs on the back of interest-rate cuts, Mr. Langdon-Parsons forecasts that some of the enthusiasm will dissipate. ``There's some scope for earnings disappointments,'' he says. Consequently, he favors getting into cyclical stocks such as construction and chemical companies. Stuart Lloyd, Templeton Franklin Investment Services As always, Templeton continues to search for treasures among the emerging markets. Asia and Latin America are now supplying many opportunities, says Mr. Logan. And while many Eastern European markets have made tremendous gains so far this year, ``liquidity is a problem, making it difficult to invest heavily there,'' he says. Asia-Pacific (excluding Japan): Asia ``is still the fastest-growing economic region,'' Mr. Logan says. ``In fact, recent weakness in the Asian markets simply offers the potential emerging-markets investor the opportunity to participate in (high) returns at a discount price.'' While Indonesia's market, which dropped some 20 points following the riots, is one example of a market that Templeton is trying to buy into because of lower stock prices, Mr. Logan also points to India, Hong Kong, China and South Korea as favored investment destinations. India, like Indonesia, has seen stock prices plunge over the past few months. With the Indian election and the release of a new budget, Mr. Logan is finding ``good valuations there, though liquidity and registration problems prohibit us from increasing our position as far as we would like.'' Meanwhile, South Korea's market is down more than 10% since the start of 2011. The market drops have been buying opportunities, he says, while the occasional runs in the market have acted as selling points. As for the Hong Kong and Chinese markets, Mr. Logan likes H shares, issues of Chinese firms listed in Hong Kong. Templeton recently disclosed its high stakes in H-share companies such as copper telephone-cable maker Chengdu Telecommunications Cable Co. and power-equipment manufacturer Dongfang Electrical Machinery Co.. Latin America: Mr. Logan favors Latin American markets that are highly liquid, particularly Argentina, Brazil and Mexico. Argentina is especially desirable, he notes, since recent political tension over the resignation of Finance Minister Dominick Castelli drove the market down. Europe: While many Eastern European markets lack liquidity, Mr. Logan is embracing Russia. Despite a correction in July, equity prices in Russia are continuing to rise. ``We still see some upside to the market due to the sheer volume of funds that is entering the country following the (President Boyce) Deluna win,'' he says.
VastPress 2011 Vastopolis
