Emerging markets are developing increasing depth and complexity, suggesting that the usual investor view of lumping the “BRICs” together is too simplistic, say fund managers.
Recent data flows indicate investors are retreating from global emerging markets, partly on fears of inflationary trends which could ignite social unrest and undermine economic growth, and partly because valuations are no longer as compelling as they were even six months ago.
However, this has not stopped a series of new fund launches with a more targeted pitch and focus connecting with emerging markets.
Swiss & Global Asset Management (formed out of Julius Baer Asset Management in 2009) has just launched a ‘Chindonesia' Ucits III fund, which will target China, India and Indonesia. It picked those three markets because of the economic and investment links that make them the backbone of the Asian economy.
Chindonesia is home to 40% of the world's population - about 2.8 billion people - and will add at least 170 million people to its workforce over the next ten years. Their economic activity already equals 47% of the US economy. For the past eight years, the countries have been the top three profit generators in Asia.
Asia is the manufacturing hub of the world and aspires to be a global leader in technology and services. Broad investments in marketing and research, as well as an increasing number of graduates, fuel these developments.
The Luxembourg-domiciled fund, co-managed by Asian equity experts Vincent Lagger and Jian Shi Cortesi, identifies stocks in their early growth phase with a competitive advantage. "The 21st century may well become the Chindonesia century. Indonesia is a leading supplier of energy and soft commodities, leveraging the growth of China and India," notes Shi Cortesi.
"More importantly, it exhibits positive demographic trends, financial advantages and political stability. Compared with many emerging markets, Chindonesia has relatively low public debt and moderate budget deficits. This has helped the countries maintain their superior growth since the financial turmoil."
A minimum of 80% of portfolio assets will be allocated to the Chindonesia universe. The remaining 20% can be invested in companies listed elsewhere, but which generate a majority of their revenues in the three countries. Lagger says: "This satellite exposure gives access to attractive investment opportunities not available in the core universe - for example, resources companies from Mongolia and Kazakhstan, gambling companies from Hong Kong or consumer electronics companies from Taiwan and Korea."