redwood makes bull case for ems

The bull case for emerging market equities and commodities remains strong, according to Evercore Pan Assets chairman John Redwood who has been buying into China.

redwood makes bull case for ems


Shares in “better” emerging market economies are currently very cheap, he said, while stressing that the gloom around a possible hard landing for China has been overdone – growth should be at least 4% there in 2012.

“Chinese shares are selling on eight times earnings, hardly bubble territory,” he said.

“The Chinese success story is not yet over. The irrational exuberance in property is not yet at a level which is a game changer. We think 2012 is the year when Chinese shares could become better appreciated. The last decade has seen great performance from them. The last year has seen poor performance. We regard that as a buying opportunity.”

On a regional level, Redwood sees Asia and Latin America as posting a decent year of growth, which at some point should drive valuations of equities upwards. As at the end of 2011, Evercore’s PanAggressive Fund had around 30% in Asian Equities and a further 7% across general emerging markets.

He added: “It is true these economies will not have such easy times exporting to the EU, as European economies slow or decline further. However, the rising numbers of people in emerging countries that have money to spend means more domestic demand growth.”

Closer to home, Redwood is less concerned that the weakness of European banks could bring disaster further afield. He believes that recent actions show that the ECB has more scope to protect and finance the banks than it does the weak countries.

“We expect them to muddle through with the banks,” he said. 

“The countries are more difficult. The two most likely scenarios are the weakest countries dropping out of the euro to save the rest, or planned and controlled defaults by weak countries as they struggle to cut their debts and deficits.”


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