Why the time is right to invest in emerging markets

Emma Wall  |  20/03/2017Text size  Decrease  Increase  |  

Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and I'm joined today by Hilde Jenssen from Skagen Funds to talk about emerging markets.

Hello, Hilde.

Hilde Jenssen: Hi. How are you?

Wall: I'm very well. Thank you. Unfortunately, emerging markets have not had a very good rap in recent years. They seem to be very out of favor and this is despite in the last 12 months having pretty healthy returns. Why do you think people are so against emerging markets?

Jenssen: Well, that's a great question. I think a lot of the unpopularity in emerging markets is because people have been disappointed over the years, especially the last five years. And people are disappointed because they keep waiting for corporate results to become stronger and companies to show better health, but it just hasn't happened at the speed that people were hoping. What we're seeing now that makes it interesting is a lot of changes in the various economies around the world that make this a particularly attractive market.

Wall: And it's a very attractive valuation point of view as well. Despite the fact that we have had a rally from the last 12 months, it's come from a very low base. So, this is a good time to get in?

Jenssen: I think so. Well, clearly, we are a value-based manager and we think long-term about business models and which companies that are able to thrive in various environments. So, with that, we look at the long-term path of earnings trajectories and take that into account when we make our investments. But what we do see is that corporate earnings are getting stronger, cash flows are improving as well which is really important and that's an important thing to look at long-term as well. But we see underpinnings and some of the tailwinds are actually coming from reforms in various markets that also touch on the way that businesses are being run around the world.

Wall: And I think that's a very important point because traditionally emerging markets were seen as higher-risk. I know they do come with a lot of volatility. People think emerging markets means no corporate governance, no shareholder rights and therefore, they are less attractive than investing perhaps in a developed market equity. But actually, that's increasingly not the case, isn't it?

Jenssen: Yeah, and I think that's really important when you look at a company as a potential investment is not to see necessarily where the company is at the current moment and how well it's being managed, but where could it potentially be in 5 to 10 years from now and that's where we are mentally when we are looking at potential investment opportunities.

Wall: Hilde, thank you very much.

Jenssen: Thank you.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

Video Archive...

Earnings season FY17 mixed bag so far
18/08/2017  Aside from a few high-profile earnings guidance misses, large-cap stocks are doing okay as FY17 reporting season passes halfway, says AMP chief economist Shane Oliver.
Rio Tinto posts mixed result for 1H17
10/08/2017  An interim result of US$3.9 billion in net profits after tax for one of the world's largest mining companies was positive but slightly weaker than expected, even alongside a record dividend, explains Morningstar's Mat Hodge.
Kerr Neilson on why global investment exposure is key
07/08/2017  There are two types of investors, regardless of market noise, imputation credits, diversification approaches and market indices, says the managing director of Platinum Asset Management.
Finding fixed income opportunities in new paradigm
02/08/2017  Slowing economic growth in the US and parts of Europe emphasises the need to carefully select credit opportunities, says Vincent Reinhart, chief economist, Standish Mellon Asset Management.
Exclusive: An interview with Westpac CEO, Brian Hartzer - Part 3
20/07/2017  Insights on Australia's housing market, China's effect on domestic banks, and cyber-security readiness, in the final instalment of Brian Hartzer's interview with Morningstar's David Ellis.
Telstra won't be blown away by headwinds
17/07/2017  While it faces what Morningstar equity analyst Brian Han describes as a whirlwind of negatives, he suggests investors shouldn’t hang up on Telstra.
Exclusive: An interview with Westpac CEO, Brian Hartzer - Part 2
13/07/2017  Westpac CEO Brian Hartzer joins Morningstar banking analyst David Ellis to discuss digital disruption, regulatory change and Australian banks' social license.
The home-truths of investing
12/07/2017  Look for companies that sit outside the cycle; heed the lessons of history; and remember the power of compounding, says Bennelong's Neale Goldston-Morris.
Exclusive: An interview with Westpac CEO, Brian Hartzer - Part 1
06/07/2017  Brian Hartzer, CEO, Westpac joins Morningstar senior analyst David Ellis to discuss his role leading Australia's oldest bank, how Westpac can continue to grow value, and its commitment to sustainability.
Self-managed super is not Do-it-yourself
03/07/2017  There are a few common pitfalls in running a self-managed super fund that mean trustees shouldn't go it alone entirely, says BT Financial Group's head of financial literacy, Bryan Ashenden.
Investing to protect on the downside
30/06/2017  There are investment strategies you can adopt to mitigate volatility-linked fear and uncertainty in markets, explains Roy Maslen, chief investment officer – Australian equities, AllianceBernstein.
Don’t overdo benchmark consideration
28/06/2017  Being benchmark agnostic is the most effective approach to fixed income investing, according to Anujeet Sareen, portfolio manager, Brandywine Global.
Factor-based investing using ETFs
26/06/2017  Investors should consider style-exposures--such as value, defensive or yield-- they would like in their portfolios, explains Jonathan Shead, head of portfolio strategists – Asia Pacific, State Street Global Advisors
Volatility plays to active manager strengths
--  The climate of political volatility in the US holds important implications for investors and the funds they invest in, particularly around Donald Trump's ability to pass legislation through Congress, says Pimco's Libby Cantrill.
Is the FTSE 100 Facing Another Market Crash?
16/06/2017  Ten years on from the pre-crisis FTSE 100 high, Morningstar UK's Emma Wall examines how UK stocks have fared
How to guard against retirement threats
16/06/2017  As retirement approaches, even the best-laid plans can go awry, as Tim Steffen tells Christine Benz, Morningstar US.
PIMCO Global Credit Fund
07/06/2017  The PIMCO Global Credit strategy receives a Morningstar Analyst Rating of Silver due to its sizeable and highly capable credit research team.
PIMCO Income Fund
07/06/2017  Morningstar's Tim Wong looks at the strengths and competitive advantages of this Silver-rated strategy.
3 pockets of opportunity in fixed income
07/06/2017  The head of PIMCO Australia portfolio management explains his views on active management in fixed income and outlines where he sees most value in this space.
Trump administration biggest macro threat for investors
05/06/2017  Even as European political volatility subsides, the US Government remains a considerable threat to financial markets, says Colleen Barbeau, director of equity portfolio management, Franklin Templeton.