However, now that fears of hard landing in China have abated and a sustained recovery looks more likely in the US, emerging market managers enter 2013 with confidence.
Political changes in China could herald progress on reforming the world’s second largest economy, while Brazil’s economic momentum is expected to pick up.
Charlie Awdry, manager of the Henderson China Opportunities Fund
“November revealed [China’s] new Standing Committee of the Politburo, which will herald the appointment of Mr Xi as President and Mr Li as Premier. These appointments were well flagged and so do not come as a surprise. While the change is unlikely to signal a notable change of policy, the new leaders ought to embrace reform.
“As politics plays a critical role in driving the business cycle, the peak year of China’s investment growth is likely to come in 2013 as the new leaders begin to implement their growth plans. This is expected to boost gross domestic product growth to 7% to 8% in the year and, therefore, we have added some cyclically sensitive holdings in the fourth quarter.”
Thomas Smith, manager of the Neptune Latin America Fund
“Economic momentum in Brazil is improving and should continue to improve into 2013. Coming at a time when China’s economic data is picking up and global economic momentum is accelerating, the outlook is for a much brighter year in 2013.
“The upcoming football World Cup and the 2016 Olympics games are accelerating reforms and we expect to see more privatisations coming from the logistics sector including airports, tollroads and, eventually, ports, as well as increased levels of investment in infrastructure.”
Allan Conway, head of emerging market Equities at Schroders
“We expect emerging market equities to deliver solid performance during 2013 and perform even better over the longer term. There are several reasons for this.
“First, taken in isolation, GEMs look extremely attractive in terms of valuations, both absolute and relative to history as well as on a market capitalisation to GDP basis.
“Second, two of the three most significant headwinds for risk assets in 2012 should begin to fade as we progress through next year. Specifically, Chinese economic growth appears to be responding to the modest easing measures that were implemented earlier this year.
“We will also have a resolution to the US ‘fiscal cliff’ debate early next year. [But] the one remaining major overhang for markets is the eurozone crisis. In our opinion, this continues to represent the biggest risk for equity markets, including GEMs.”
