The New Emerging Markets | Value Research Know more about the next engines of growth in the emerging market space from Alice Brader of JP Morgan Asset Management...

The New Emerging Markets

Know more about the next engines of growth in the emerging market space from Alice Brader of JP Morgan Asset Management...

Laos, Vietnam, Myanmar and Cambodia are the next engines of growth in the emerging market space, says Alice Brader, VP and Client Portfolio Manager, Pacific Regional Group, JP Morgan Asset Management-Hong Kong.

What is your outlook on emerging markets?
We are looking at a relatively constructive backdrop for emerging markets overall. There has been a relatively strong recovery in the US, however, the European markets are likely to remain volatile. We see some pockets of opportunity within the Asian investment landscape. There are some good growth and investment stories here and we are quite positive on the Asian emerging markets.

The Association of South East Asian Nations (ASEAN) region, I think, is a good diversifier with five core countries-- Indonesia, Malaysia, Philippines, Thailand, Singapore, and five peripheral countries – Brunei, Vietnam, Laos, Myanmar and Cambodia. The growth drivers for all these countries are very different. Thailand and Indonesia have strong domestic consumption as well as investment themes. After the Asian financial crisis these countries have de-leveraged their balance sheets and are now in a position to start to re-leverage and invest. We are quite bullish on Thailand.

Then there is Singapore, which has the characteristics of a more developed stock market, with a few bright stock picking opportunities. The Philippines is also a very interesting market and displays encouraging prospects, which has been in the sweet spot for the past 7-8 months. However, we do have some reservations in terms of valuations in some of the ASEAN countries as they have performed well and valuations are quite rich.

Laos, Vietnam, Myanmar and Cambodia or LVMC, is the next engine of growth. We don't invest much in those stock markets, but we can play many investment themes through the more liquid stock markets such as Singapore and Thailand.

From a downside protection view, the Greater China region is quite attractive to us currently. We do believe that there could be moderate economic recovery for the rest of 2013. We continue to expect hawkish rhetoric paired with a slight tightening in liquidity conditions given the preliminary signs of macro-economic stabilisation. This rhetoric has proven unpopular with investors and may have some impact on consumer sentiments and thus fundamentals. But, we retain our comfort that valuations and estimates have largely taken these negatives into account, and in this context, we are quite overweight on Hong Kong and China.

JP Morgan ASEAN Equity Offshore Fund and JP Morgan Greater China Equity Offshore Fund have given positive returns. Do you plan to come out with other country-specific funds?
We are currently evaluating a couple of themes and one is an emerging markets proposition for Indian investors. There is a lot of interest around the developed markets and one of the biggest engines of global growth is the US, and we are evaluating a US Equity offering for our Indian investors. Currently, we have three funds which are looking at geographies. We believe we have provided comprehensive exposure to geographies of interest and would like to further capture geographies in the emerging markets that are currently not part of our portfolio.

What contributed to these funds' strong performance?
We strongly believe in bottom-up stock picking and spend a lot of time analysing companies. Looking at the performance of the funds and the manner in which they have generated alpha, 70 per cent of that return comes from stock selection and remaining from geographical allocation. Within the ASEAN context, we have made the right call with Thailand, where we were overweight and it played out favourably. There was a similar gain from Indonesia. For the Greater China fund, in terms of geographical allocation, we were overweight on Hong Kong, which has contributed significantly over the last one year. Most of the returns come from stock selection and having the right picks in various sectors. In Greater China, our investments related to the property sectors have done very well. Also, internet-related themes have helped our performance substantially in last one year.

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