Investors too pessimistic on emerging markets, says Ignis’ James Smith

James Smith, manager of the Ignis International Emerging Markets Select Value fund, believes growth will continue into 2012, and that emerging markets are currently undervalued.

We are very optimistic at the moment on a number of emerging market countries, which are looking good value after the recent sell-off. We are not factoring in a double dip recession because we have no firm evidence there will be one, instead we expect there will be both GDP and profits growth this year and next.

Brazil, Turkey and Russia have cut short term rates and China has advanced in terms of monetary tightening. Overall we believe we have seen the worse of the monetary policy tightening and will now see loosening which is good for emerging markets.

India’s money policy is likely to remain tight with the current inflation rate at 9%. Much of this is due to agricultural prices which are worryingly high. We are not expecting any imminent cuts in India.

Turkey is typically a high beta market and does well when the asset class does well. The Central Bank of Turkey has taken a bold step to cut rates. We are not too worried about inflation or a selloff in currency in Turkey.

Israel has been hammered recently partly because of its close location to the Middle East – this has sparked political fears.

The country has a big export segment to the US – some Blue Chip companies – but we expect earnings to be reasonably robust. We have added to our position here and are trying to target 4.5%.

Poland has a forward looking price to earnings ratio of 10x, Czech Republic is currently yielding 7.5% and has a forward looking price to earnings ratio of 11x and Hungary is price to earnings ratio is 10x. It is these sort of valuation metrics which have drawn us to Eastern Europe.

If you can be patient and have a reasonable time frame you can pick up some very cheap assets in emerging markets.We remain confident about the outlook for emerging markets from now up to the end of the year.

 

James Smith is manager of the Ignis International Emerging Markets Select Value fund.

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