The emerging markets bubble has not burst and Fidelity International is considering introducing an emerging markets fund to Australia.
Referring to the recent shift in interest from emerging markets to the developed world, Fidelity investment director for emerging equities, James Cook, said that 65 per cent of global gross domestic product growth in 2010 was due to emerging markets. He said emerging markets had reached a fraction of their potential and there was still a long way to go as the fundamental drivers for growth remained intact. These drivers included a huge labour pool that was not only relatively young but also cheap compared to the developed world, he said.
Comparing some motor vehicle factory workers in Asia and Germany, Cook said the former earned more than 10 times less than their German counterparts.
“It’s this lower labour cost that is giving emerging market companies the competitive advantage,” he said.
An added advantage was the abundance of natural resources in emerging markets, including oil, natural gases and previous metals.
When it came to valuations, Cook said generally emerging markets were trading below historical averages and at a discount to the develop world. In Fidelity’s view, valuations in Africa were particularly attractive and yet the region remained underappreciated, Cook said. He added that six of the top 10 fastest growing economies over the last decade were in Africa.
“The drivers for growth in emerging markets remain very much intact, and we believe emerging markets continue to offer unappreciated opportunities,” said Cook.
Fidelity stated it was considering introducing an emerging markets fund to Australia.
Fidelity investment director, Asia ex-Japan, Catherine Yeung, said that while some investors were moving out of emerging markets, Fidelity’s Asia Pacific portfolio managers viewed it as a chance to “be contrarian”, using market movements as good buying opportunities. She noted that Asia countries, including China, were introducing politically favourable and pro-growth policies that were promoting domestic consumption.
