EdRAM’s preference goes to Russia and emerging Europe
Emerging Europe is one of the most promising economic regions in the world, despite the negative economic climate in neighbouring Western Europe, according to Edmond de Rothschild Asset Management.
The region includes large and fundamentally robust economies like Russia, Turkey and Poland, and developing frontier countries with huge upside thanks to an emerging middle class and narrowing earnings gaps with the West.
According to a research published by the asset management company, Emerging Europe is a highly diversified investment zone which combines robust macroeconomic fundamentals, attractive valuations and untapped investment opportunities.
After the 2008-09 crisis, emerging Europe economies rapidly recovered and are set to grow twice as fast as Western Europe in coming years, with performance mainly driven by strong domestic demand; large-scale government investment programmes; an emerging middle class that will drive consumption in coming years; abundant natural resources at a time of rising commodity prices; cheap and highly qualified labour; and low taxation, which should continue to attract foreign direct investment and underpin growth in the zone.
Improvements in corporate governance in Russia’s big groups along with higher dividends could drive the market and lead to an expansion in market multiples which are still relatively low compared to global emerging markets, according to Philippe Uzan, chief investment officer at Edmond de Rothschild Asset Management.
“In Russia, Vladimir Putin’s election as President was a positive factor for the market as it brought an end to a period of political uncertainty that had weighed on the market since the parliamentary elections at the end of 2011. High oil prices will also underpin the market,” he said.
Looking elsewhere, despite a European recession caused by efforts to reduce government deficits, the global economy faces fewer obstacles than in 2011.
“In the US, the property market purge is close to ending and US growth in 2010 should be more robust. Conditions in emerging markets are particularly upbeat: inflation is under control, growth is structurally high and valuations are reasonable,” Uzan said.
Meanwhile, Latin America is a very diverse zone with booming domestic markets, exposure to global growth, China in particular, and significant oil resources.
“We believe that Brazil could recover this year and post growth of 3.5%. Consumption will be the main driver, spurred by a 14% rise in the minimum wage and historically low unemployment. Moreover, lower inflation over the last two quarters has allowed the central bank to ease monetary policy significantly. Its first move to reduce benchmark rates was in August 2011,” Uzan added.
Affiliate to La Compagnie Financière Edmond de Rothschild, EdRAM has about €12.8bn under management in investment mandates and 28 open-ended funds registered in 15 countries.