As Chinese slowdown fears ease, are prospects brighter for emerging market equities?
Will Ballard, head of emerging markets and Asia Pacific equities at Aviva Investors, says Yes
The recent turmoil in emerging markets is nothing new. Indeed, we have been here before. The journey has often been painful but it has also been rewarding.
This is because although emerging markets are volatile, they are driven by long-term trends which are not derailed overnight.
China is slowing; this is indisputable. Its “ever growing” need for commodities is no longer ever growing. But why is this such a surprise?
A change in perceived wisdom by the investment community is often met with a violent reaction, and markets can oscillate from greed to fear quicker than you can flick to the next page.
But that doesn’t necessarily mean that long-term shifts – from a parabolic growth in incomes, to increases in living standards, and changes in individuals’ aspirations – have not occurred.
What it does mean is that the price you pay to invest in a company exposed to this huge transformational change has. As short-term fears ease, investors will return. And being there first will always generate the greatest returns.
David Buik, market commentator at Panmure Gordon, says No
It took a 40 per cent drop in the Shanghai Composite last month for the penny to drop with investors that growth in China was dissipating by the month.
Ultimately, nobody knows how economical China is being with the truth about the robustness of its economy.
Even though it is accepted that the Chinese authorities can manipulate markets better than most, it would be folly to be duped – by one set of positive manufacturing data – into thinking that all is well.
The fall-out experienced from the drop in natural resources and oil prices, as well as the profits warning posted by Caterpillar, suggests growth, though officially around 6.5-7 per cent, may only be minimal in reality.
Growth prospects around the world remain brittle. With the Federal Reserve hell-bent on raising interest rates before too long, a strong dollar seems inevitable.
And with Abenomics clearly not working, there is little encouragement out there to titivate investors’ taste buds for emerging market equities.