“As those markets mature, you find a lot of companies in them have started to reward investors with dividends, and that has led a number of companies to set up Asian income funds that seek to harness the power of those dividends,” he adds.
“If you think there is a stretch for yield going on, it is conducive to looking around the world for income opportunities.”
What the US does next…
Now into the second half of the year, a key focus will be whether or not the US Federal Reserve decides to start raising interest rates, which could lead to volatility across the globe, particularly in more vulnerable emerging markets.
However, rate-hike cycles predicated on strong growth and normalisation of monetary policy could offer up opportunities in the developing world.
Geopolitics are also an issue, particularly for the likes of Turkey and Russia, while fluctuating commodity prices remain both a help and a hindrance depending on the economy in question.
In the firm’s mid-year update, Mirae Asset Global Investments chief investment officers José Gerardo Morales and Rahul Chadha point out that emerging markets outside of Asia underperformed broader emerging markets through the first half of the year, as global trade operated at below full strength.
“Many countries were unable to generate enough stimulus to reach escape velocity, prompting a movement of weaker currencies to stimulate exports,” they say.
“This foreign exchange trend has contributed to better trade balances, while lower oil prices have also benefited oil-importing countries such as China, India, Korea, Turkey, South Africa and Chile, but have been a drag on others, such as Russia, Mexico, the United Arab Emirates and Colombia.”
Keeping in mind Cockerill’s comments about the BRICs now moving in different directions, the Mirae team points to Russia as a surprise, having shown relatively resilient growth in the first half of the year despite US and European sanctions.
The managers point to a sharp depreciation in the rouble and the required emergency rate hike to protect the currency will now begin to have an impact.
“The first half’s high interest rates and the deleveraging seen in the consumer sector should anchor down growth in the second half of the year,” they say.
“We do not believe sanctions will be lifted in the second half, which means external financing options will remain limited. Politics and oil remain the most important topics for Russia in the second half. Both remain uncertain and we expect the market to remain volatile.”
That said, the pair point out that the Russian market remains under-owned and they are continuing to monitor attractive opportunities during periods of risk aversion.
The bravest contrarian call of today, or a recipe for disaster?
As it seems with all emerging market investing, the longer term the investment horizon, the more likely success will come.
