Three key trends to determine H2

Our belief is that there are three key events or trends that will affect emerging markets during the second half of 2015.

Firstly, the likelihood of a “U Shaped” growth recovery. In a disinflationary world, growth recovery would be a gradual “U shaped” rather than a historical “V shaped” recovery.

Secondly, demand scarcity with capital abundance, we believe that world today faces a demand problem while capital remains in plenty thanks to quantitative easing (QE) by big central banks. In such a scenario, relatively unleveraged economies with favourable demographics and stable political structures like India, Philippines and Indonesia are likely to attract significant investment interest from businesses, creating a virtuous loop.

Thirdly, will the US Fed raise interest rates? As we head into the second half of 2015, expectations of the US Fed raising interest rates will become more of a market focus. Rate hike cycles predicated on strong growth and normalization of monetary policy offer an opportunity in emerging markets. Markets that can take advantage of an increase in trade from strong global growth should benefit in our view; especially those trading at below average valuations.

In terms of regional plays, we remain constructive on Asian equities in 2015, although post a strong run up, pullbacks are possible as growth response to monetary easing would be fairly uneven across economies. The benign commodity cycle is a key positive for the Asian region overall, yet the widening premium in China A-shares over H-shares and extended valuations suggest that the Chinese market may have become overheated. Within this backdrop, we adhere to the view of getting “China right” as a central element within our Asia portfolio, moderating polarizing utopian and doomsday scenarios by investing in high quality companies at reasonable valuations through bottom-up stock picking.

Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 17 years he has been based in London writing about funds and investments. From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope. Jonathan was awarded Editor of the Year at the Professional Publishers Association (PPA) Independent Publisher Awards 2017. Shortlisted for the same in 2016, he was also shortlisted in 2017 and 2015 for the broader PPA Awards category Editor of the Year (Business Media).

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