French boutique eyes emerging market growth

Paris-based fund group Comgest confirmed its optimistic outlook for emerging market countries in 2011 despite predicting slow global economic growth in coming years.

Vincent Strauss, chief executive of Comgest, said its forecast of above-average growth rates in the emerging markets is based on structural factors, such as increasing disposable income of a growing middle class and improved productivity.

He noted the influence of weak economic performance in industrialised countries could put a damper on emerging market economies in the short term.

Data published today shows recession has already hit industrialised countries in Europe: the economies of both Italy and the Netherlands contracted by 0.7% in the fourth quarter of 2011, having already contracted in the third quarter.

Even Germany, the heavyweight of the eurozone economies, witnessed a contraction of 0.2%.

France saw surprise growth of 0.2%, narrowly escaping the recessionary outlook for its peers.

“The ‘decoupling’ so often talked about of late is a myth,” Strauss said. “Too many emerging market countries are strongly dependent upon exports and capital flows with the developed countries.”

Emerging market investment comes primarily from developed countries and not from emerging market countries themselves, Comgest said.

Western investors were optimistic about emerging markets at the start of 2011, but their risk appetite declined markedly since last summer, it added. Offshore emerging market funds saw outflows of $48.2bn in 2011 following inflows of $95.8bn the previous year, according to EPFR Global.

The European bank crisis has driven money back into the yen and US dollar at the expense of emerging market equities and bonds, Comgest said.

Despite these negative factors, Comgest said anticipated growth in profits and emerging market valuations have once again reached an attractive level. It expects to see average annual growth in earnings per share of 12% over 2012 and 2013 for emerging market companies.

Following the drop in the exchange rates of emerging market currencies in August 2011, the group now views currency appreciation versus most developed market currencies as an attractive opportunity, with the exception of Eastern Europe.

Céline Piquemal, manager of Comgest’s global equity strategy, said in an environment where growth is scarce, global companies with growing earnings per share will differentiate themselves from the competition in their respective markets.

Piquemal added: “the strong business models and franchises of the companies in this portfolio, together with exposure to growth markets should enable them to generate that growth.” The global portfolio is mainly invested in large caps from information technology (34%) healthcare (14%), consumer staples (10%) and telecom stocks (7%).

Founded in 1985, Comgest is an asset management group headquartered in Paris. It has operating entities in Dublin, Hong Kong, Tokyo and Singapore and manages €13.5bn of client assets.

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