Value still to be had in emerging markets

Despite recent underperformance by the MSCI Emerging Markets Index, fund manager Investec Asset Management says that emerging markets still offer investors relative value.

Archie Hart, a portfolio manager at Investec, said that many emerging markets are cheap relative to the US and Europe and an active, stock-picking approach should deliver best results. He added: “Since the financial crisis, price-to-earnings ratios (PE) have converged but this can in part be attributed to an increase in emerging market labour costs. However, emerging markets still benefit from cheaper labour relative to developed markets.”

Hart said he shared in the consensus view that emerging markets currently enjoy brighter economic prospects than the developed world in the short and medium term, with around 80% of global GDP growth now coming from the emerging world. But he warned: “The correlation between growth and stock market performance in emerging markets is complex, as the composition of stock markets often bears only a very loose relationship with the economies they supposedly represent”.