Risk diversification and cheap valuation to be found in EM, says Robeco

Investors should keep a healthy appetite for emerging market (EM) assets, despite returns not being a “sure thing”, says Arnout van Rijn, chief investment officer at Robeco Asia.

Speaking at the Robeco Summer University conference in Madrid, van Rijn (pictured) said that while emerging markets proved to be a tricky investment between 1994 and 2000, today they provide an interesting investment destination given the current market environment in Western markets.

Van Rijn says that compared to Europe, emerging markets offer relatively cheap valuations and superior macroeconomic statistics.

“Those countries have restructured their political system and now have a stable economy. It is an important element to continue to be interested in EM because it will lead to a re-rating of the stock market,” he said.

Of emerging markets, investors like risk diversification, market valuation and the opportunity for superior returns. The interest was confirmed by the panel’s audience, where more than 90% of attendees raised their hands when asked if they have exposure to EM assets.

In terms of regions, van Rijn expressed a preference for Thailand, where the market is “bouncing back nicely” after severe natural disasters.

Robeco is also “warming up on China”, taking a positive six to 12 months view for the economy.

“Expectations for Chinese stock market are low and this is when you try to buy. Many IPOs in the country have also been cancelled,” the manager said.

Monetary easing is another trend that will ease the economic situation. 

Feelings are mixed on India, where expectations that the market was going to be the “next China” have been lowered.

 “Valuation is now becoming more attractive and companies are generating good returns. The country is slowly on track, but inflation issues are still there and the country needs foreign capital to grow,” he said.

Meanwhile, currencies could become the best friend of investors over the next ten years.

 “Currencies have been the silent assassin in the past, but this is changing as you can hedge currency risk at a decent rate now. Currency appreciation will inevitably happen over the next years and investors should be well positioned to profit from that,” he said, recalling the steep depreciation of the Mexican peso and of the Brazilian real in past years against the US dollar.

 

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