Since their low point in early March emerging markets have barely paused for breath. Any sign of weakness during the summer months was followed by a rally and the MSCI Emerging Markets Index has still delivered exceptional returns this year. Since its low, the index is up by 67.7% in sterling terms (Source: Lipper, from 03/03/09 to 09/11/09), although please note past performance is not a guide to the future.
While some investors have a bullish outlook on emerging markets for the remainder of the year, James Donald, the manager of the Lazard Emerging Markets Fund is cautious in the short term. He remains positive on the prospects for the region over the medium to long term, but he feels that a setback of 20 to 30 per cent would not be a surprise in the short term.
This year’s rally has been fuelled by improving conditions in global bond markets, encouraging earnings results from companies and robust economic growth rates in places like China. As investors have been dipping their toes back into the riskier areas of the market, this has led to an increased flow of money towards emerging markets.
However, valuations in some regions are no longer as attractive as they were at the beginning of this year. For example James Donald has only 2% exposure to China but he will look to add to this exposure when he finds pockets of value in individual companies.
Elsewhere, markets like Hungary and Poland which fell severely in 2008 have staged a strong recovery and valuations there are also no longer compelling. Indonesia has been among the strongest markets and while he has taken some profits he remains positive about the country’s overall prospects.
James Donald looks to invest in companies with sustainable earnings growth and compelling valuations. He embraces Lazard’s concept of financial productivity i.e. the return a company generates on every pound invested. This method helps to assess how effectively a company is putting its shareholders’ money to work, and Lazard believe this should ultimately drive share prices.
There are some exciting opportunities in some of the Latin American countries. In particular, James Donald likes Mexico which he believes is a cheap market, with a robust banking sector.
He also likes Brazil. The largest holding in the fund is Banco do Brasil, a bank which has performed well on the back of recovering loan growth. With banks making up around 20 per cent of the overall portfolio, it might come across as a recurring theme, but this is stock specific rather than a strong view on the sector as a whole. Another prime example of a company he likes is VisaNet in Brazil. The company has 46% market share in terms of debit and credit card transaction, and in his view is a business with excellent growth prospects.
The fund is designed for sophisticated investors due to its high risk nature. The main risks to emerging markets in the short term would be a further deterioration in global economic growth, political risk, and a significant appreciation of the dollar.
Over a three to five year view James Donald remains bullish. He compares the current period to the downturn in the 1970s where developed markets like the UK and US went through a difficult period, but emerging markets performed extremely well.
Economic growth in the emerging markets looks likely to be higher than the developed markets over the coming years. Investors looking for an investment in emerging markets who are prepared to take the risk could consider a fund like this which is on the Wealth 150; a list of our favourite funds in each sector.
Meera Patel, Senior Analyst
key features of the Lazard Emerging Markets Fund
While some investors have a bullish outlook on emerging markets for the remainder of the year, James Donald, the manager of the Lazard Emerging Markets Fund is cautious in the short term. He remains positive on the prospects for the region over the medium to long term, but he feels that a setback of 20 to 30 per cent would not be a surprise in the short term.
This year’s rally has been fuelled by improving conditions in global bond markets, encouraging earnings results from companies and robust economic growth rates in places like China. As investors have been dipping their toes back into the riskier areas of the market, this has led to an increased flow of money towards emerging markets.
However, valuations in some regions are no longer as attractive as they were at the beginning of this year. For example James Donald has only 2% exposure to China but he will look to add to this exposure when he finds pockets of value in individual companies.
Elsewhere, markets like Hungary and Poland which fell severely in 2008 have staged a strong recovery and valuations there are also no longer compelling. Indonesia has been among the strongest markets and while he has taken some profits he remains positive about the country’s overall prospects.
James Donald looks to invest in companies with sustainable earnings growth and compelling valuations. He embraces Lazard’s concept of financial productivity i.e. the return a company generates on every pound invested. This method helps to assess how effectively a company is putting its shareholders’ money to work, and Lazard believe this should ultimately drive share prices.
There are some exciting opportunities in some of the Latin American countries. In particular, James Donald likes Mexico which he believes is a cheap market, with a robust banking sector.
He also likes Brazil. The largest holding in the fund is Banco do Brasil, a bank which has performed well on the back of recovering loan growth. With banks making up around 20 per cent of the overall portfolio, it might come across as a recurring theme, but this is stock specific rather than a strong view on the sector as a whole. Another prime example of a company he likes is VisaNet in Brazil. The company has 46% market share in terms of debit and credit card transaction, and in his view is a business with excellent growth prospects.
The fund is designed for sophisticated investors due to its high risk nature. The main risks to emerging markets in the short term would be a further deterioration in global economic growth, political risk, and a significant appreciation of the dollar.
Over a three to five year view James Donald remains bullish. He compares the current period to the downturn in the 1970s where developed markets like the UK and US went through a difficult period, but emerging markets performed extremely well.
Economic growth in the emerging markets looks likely to be higher than the developed markets over the coming years. Investors looking for an investment in emerging markets who are prepared to take the risk could consider a fund like this which is on the Wealth 150; a list of our favourite funds in each sector.
Meera Patel, Senior Analyst
key features of the Lazard Emerging Markets Fund
