His view is based on being able to see through the short-term volatility and, with a 12-month outlook, he says “valuations in emerging market equities and currencies represent a buying opportunity”.
JP Morgan Asset Management is even more bullish, describing emerging markets as an unequivocal buying opportunity in a recent note.
Part of their logic is the current price-to-book ratio for the MSCI EM Index at 1.49x. The significance of this is it is that historically investors have been paid to own the asset class at a price-to-book of 1.5x or below.
Their note says: “Our message should be: markets always feel ugly at this point but now is the time for clients to increase exposure not capitulate. Notwithstanding lingering uncertainties in the eurozone, we are positive on the asset class, given favourable valuations and a positive liquidity backdrop.”
As crude a measure as it may be, JP Morgan AM has also used it to show caution is the best approach when the ratio hits 2.5x or above. Fair value for them is 2x.
At our Portfolio Adviser Expert Investor conference in Edinburgh earlier this week, Georg Benes, a research analyst at Lazard Asset Management, gave his positive take on the emerging market opportunity set, with increasing stock opportunities – there are 2,700 companies in the MSCI EM IMI Index at the moment, compared to 1,300 a decade ago – greater trade between the emerging markets themselves, stronger fundamentals and lower debt-to-GDP ratios than the developed world.
Investors are also seeing an increase in the number of ways they can get access to these markets – there is an article on exactly this in June’s issue of Portfolio Adviser that comes out next week.
Poole is undoubtedly right with his contrarian views on emerging markets given short-term volatility and their sell-off since the end of Q1; JP Morgan is unequivocal in its views; Benes argues the fundamental case very well.
The consensus remains: emerging markets are a great long-term investment.
