Rabattu maintains Brexit could be the catalyst to pull emerging markets equities out of their five year slump.
The political uncertainty brought on by Brexit and currently rocking the UK and the rest of the EU could impact other developed markets, including the US, Rabattu said. And economic recession in the US has historically been favourable for emerging markets equities, he stated.
The devaluation of the dollar coupled with increased loosening of developed market monetary policies means the green shoots in EM economies could have an opportunity to flourish, Rabattu argued.
“Over the last few months, we reduced our exposure to the DM-listed global players – from 30% to approximately 10% – and are progressing further along the path of increasing our direct exposure to EM,” he said. “This should therefore be well positioned to benefit from increasing domestic demand in emerging markets.”
“Emerging governments have generally been pushing for a rebalancing of their fledging economies by favouring domestic demand compensating for their export-driven sectors. Their actions have room to accelerate due to the implications of Brexit. Our strategy should benefit from this trend since we increasingly favoured attractively priced markets such as Russia and Brazil.
“China also looks attractive with multiple opportunities. Companies such as Want Want and Tingyi deliver free cash flow yields of close to 10% and have depressed valuations.”
