Chinese growth bodes well for broader EM investments in 2013, says F&C’s Chowdhry

Jeff Chowdhry, head of Emerging Equities at F&C Investments, sees improvements in China should have a positive impact on broader emerging market returns this year.

We are seeing definite evidence of a stabilisation of the Chinese economy. Looking at key factors, such as the Purchasing Managers Index (PMI), infrastructure spending and residential property sales, there are signs that all of these areas are picking up. Although we don’t expect double digit growth in 2013, all these areas indicate that the Chinese economy is likely to grow faster this year. This outlook is reinforced by the fact that we are in the first year of new leadership for the country. Historically, new leaders in China have tended to introduce structural measures, which lend credibility to the market.

Valuations of Global Emerging Markets are attractive across the board, and we are currently overweight in China, India and Brazil, all of which we expect to recover this year as there is evidence that they are at the bottom of an economic cycle. On a valuation basis, emerging market equities are below their five year historical average, suggesting that there are buying opportunities to be had.

Consumer sectors and financials have proved to be resilient areas of the market. As Chinese consumers increasingly have more discretionary spending power, it is areas such as these that are likely to benefit. A company that we expect to do well from this trend is China Life, an insurance company. The same can be said for companies in other emerging markets. In Brazil we like BRMALLS, a company which operates shopping malls, as the penetration of malls in the country is currently fairly low, and as a result is a growing area in the retail space.

We are continuing to see Asian companies becoming more dominant globally. Samsung, the South Korean electronics company, has seen its market share against leaders such as Apple grow at an exceptional rate in recent years, particularly in the smart phone market where Samsung sold 213 million smart phones in 2012, compared to 136 million for Apple’s iPhone.

 

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