A healthy demand environment in the wake of China’s post-Covid re-opening, strong fiscal and current account backdrops in a number of economies and the potential for significant rate cuts are all reasons investor sentiment towards emerging markets is turning more positive, argues Fidelity Emerging Markets Limited co-portfolio manager Chris Tennant in this video interview for Portfolio Adviser.
On the last of these points, he tells Portfolio Adviser editorial director Julian Marr: “We have also seen a lot of discipline from emerging markets central banks this cycle so – whereas we are seeing negative real interest rates in a lot of developed countries, including the UK – emerging market central banks have hiked well ahead of the curve.
“Brazil, for example, has interest rates close to 14% and that means, when you do see rates final start to get cut, emerging markets banks can cut a lot – and that will be a real tailwind for the consumer.”
Portfolio positioning and outlook
Tennant goes on to discuss company valuations, how the portfolio is positioned and the key arguments for investors returning to emerging markets – and what may still give them pause for thought.
As for the outlook for the asset class, Tennant says: “China’s post-Covid lockdown re-opening, combined with a gradual improvement in the property sector, is a big driving force for commodity demand. So the outlook for commodities over the next six to 12 months – and even longer – is very positive.
“Where we are more cautious is on developed-market demand and some sectors that are perhaps more exposed there – for example, IT services – is where we would have more of a cautious outlook.”
You can view the whole video by clicking on the picture above, while the timecodes for each question are set out below:
00:24 Is sentiment to emerging markets changing – and, if so, why do you think that is?
02:35 Given that shift in sentiment, how do valuations look?
03:20 What do you see as the biggest arguments for investors returning to emerging markets – and what may still give them pause for thought?
05:02 How is the fund positioned, what are your strongest convictions and what areas are you avoiding?
07:03 Can you highlight any changes you have made to the portfolio recently?
08:25 What is your outlook for the rest of the year?