Fresh opportunities on the emerging markets
Emerise is Natixis Asset Management’s investment division dedicated to emerging markets. To mark the first year since its creation, Head of Emerise Stéphane Mauppin-Higashino gives an update on the outlook on these markets.
Is it time to take another look at emerging markets?
“For the past few years, we have been negative on emerging markets (EM) equities. But very recently, we started to adopt a more constructive view as we see a multiplication of green shoots.
Aggregate GDP growth in emerging markets seems to be bottoming, with expectations that the gap with developed markets will widen in favor of EM in the coming years. Our proprietary synthetic PMI index has improved regularly and on the monetary front, a majority of EM countries are still in an accommodative phase with 35 rate cuts, providing a boost to EM economies.
EM currencies’ adjustments to the dollar and euro seem largely behind us, enabling and corporates to take a breather in terms of margins and export competitiveness. Earnings per share (EPS) are beginning to recover.
The valuation/earnings risks balance on emerging markets is turning increasingly interesting for EM, unlike developed markets, where it is relatively burdensome.
Lastly, investors seem to be moving back towards these markets to a small extent, as confirmed by the recent recovery in institutionals’ calls to tender in these zones. In the medium term, these capital flows will provide support for emerging markets.”
China and Brazil: sluggish growth
According to Stéphane Mauppin-Higashino: “Despite disappointing growth in the first quarter, the latest indicators are pointing towards a modest recovery with an acceleration in economic activity.
This year, the Olympics took place in Brazil in the midst of a severe economic and political crisis, and we do not expect any significant boost from the games in the mid to long term, judging by the aftermath of the FIFA World Cup in 2014.”
What potential risks could hit emerging markets?
Stéphane Mauppin-Higashino concludes: “Credit has grown excessively over the past 5 years, putting consumption, investment and corporate margins at risk in the event of a slowdown. However, the latest round of earnings reports from EM corporates bear out their recovery and reflect renewed competitiveness. This change could improve their balance sheet and their debt situation.”
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Emerise is the emerging equities investment division of Natixis Asset Management. Emerise is a brand of Natixis Asset Management and Natixis Asset Management Asia Limited.
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