Value Rotation in Emerging Markets

It currently appears that we have a bubble in technology stocks, as in 2001. But this time round, it is combined with a deep global recession and a heightened focus on sustainability.

A Perfect Storm for Emerging Markets Stocks?

The world has never experienced this combination of “asset bubble + ESG focus + economic recession” before.

At an emerging markets webinar co-hosted with T. Rowe Price, EM portfolio manager Ernest Yeung believes this perfect storm, coupled with the value/growth divergence in emerging markets at an historical extreme, could lead to overlooked emerging markets value stocks re-rating once a broader and more sustainable global recovery takes hold.

Transcript (with timings)

3:28      Is value investing dead?

4:30      How value compares to growth in 2020.

5:27      More liquidity is being pumped into the system than assets available to buy.

6:25      How will the recovery compare to previous events?   Things have changed this time around, governments know they need to do something different.

8:49      Money supply has changed in major economies and it’s working.

11:04    There’s a good chance of recovery within the next 6-12 months.

11:47    Emerging Markets (EM) has been a pretty bad asset class – but the headline index doesn’t show the real picture.  Some EM countries have their best current account numbers in 10 years.

14:43    Lockdown is still being talked about a lot, but lockdown is a developed markets phenomenon.  Things are quite different for EM countries.

15:50    We are not in a typical recession pattern.

17:31    Same type of stock, totally different lockdown cycle and usage patterns …… but same result.  How does that happen?

18:36    Where are the opportunities in this COVID-on vs COVID-off environment?

22:22    Investors need to make sure they aren’t ignoring those stocks that currently have ‘average  ESG’ but upside potential.

26:46    OECD standards for ESG are hard to apply in the EM space so operating in that arena needs more pragmatism. The banking sector is a good example.  Another example is the use of PET bottles to transport water in India – is it realistic to stop using them?

29:57    There are differing views on how airports and airlines will fare through COVID.

33:06    Cosmetics used to be considered a structural staple consumption, but they’re now providing a good opportunity.

34:34    How are banks coping with the current headwinds – rates, deflation, technology, etc, and will they turn around?

37:48    Where in the cap spectrum are the better opportunities?

39:22    Is there still value in oil, and how does that sit with the risk of stranded assets?

42:18    The new US administration will have implications for EM and China, but not through geopolitics.