Investec backs emerging markets opportunities

Undervalued growth and high-quality companies in emerging markets will create both debt and equity opportunities for investors in 2011, according to Investec Asset Management’s Justin Cowper (pictured).

Drawing on the opinions and forecasts of London-based colleagues of Investec Asset Management’s global multi-asset team, Philip Saunders and Max King, as at December 2010, Cowper said that although emerging equities had rallied 35 per cent from May 2010 lows, valuations were still below those of developed markets.

Specialised active management would be critical in securing consistent returns from emerging markets, rather than relying on exposure to these markets through Australian equities, Cowper said.

The so-called ‘BRIC’ nations of Brazil, Russia, India and China had struggled in 2010, while Peru and Thailand had been standouts, highlighting the need for active management, he said.

There will be a compelling buying opportunity presented in emerging markets debt from a risk-adjusted perspective during 2011 if developed markets bonds continue to struggle, he added.

Some UK-based funds took advantage of this opportunity last year, moving to a discrete allocation in emerging market debt and away from the traditional method of utilising a ‘core plus’ strategy.

Cowper expected more Australian funds to follow suit, allocating a larger portion of their portfolio into specific sub sectors of fixed interest such as emerging market debt.

The analysis from Saunders and King also predicted that a rolling break up of the Euro zone was a matter of when, not if — but he added such a break up would be bullish for the economies and equity markets of the nations concerned.