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.