End in sight for emerging market rout?

The ructions in emerging markets have been painful for exchange traded fund companies with products heavily exposed to these regions, but the active asset management industry has not been immune either.

Franklin Templeton, Aberdeen Asset Management and Ashmore are among the heaviest casualties of the emerging market rout, with all three active fund houses suffering big dips in their share prices in 2015 and substantial outflows from investors.

But some of these active fund managers have been a lot more vocal than their passive counterparts in their attempts to convince investors that the situation will start to improve.

Their message of optimism goes as follows: equity valuations in emerging economies are so low they are beginning to look appealing; developed market investors have overreacted to problems in China that they do not comprehend; and investors risk missing handsome returns from an emerging market recovery if they continue to avoid these regions.

For example, Jan Dehn, head of research at Ashmore Group, is one of the loudest advocates of the emerging market rebound story. “Markets are massively overreacting at a global level as far as emerging markets [are] concerned,” he says.

“Investors and the media are paying far too much attention to the latest price movements and far too little attention to fundamentals. The [hidden] bodies are not buried in emerging markets, they are buried in developed markets.

“Developed markets have had a great run on the back of [quantitative easing] purchases,” Mr Dehn says, but adds that these countries have not carried out significant economic reforms or deleveraging. “The opposite is true for emerging markets, so this is where I see clear value.”

Mark Mobius, Franklin Templeton fund manager, also said at the start of the year: “We are not terribly concerned about growth in China, nor its long-term investment prospects. We would dub 2016 projections of 6 per cent GDP growth [in China] as quite strong given the size of the economy has grown tremendously in dollar terms.

“This is another aspect we think many investors may be missing when they see growth slowing. The fundamentals in China are still excellent.”

Although such comments may appear self-interested, even active fund companies that do not have a strong foothold in emerging markets are showing signs of optimism.

Edward Bonham-Carter, vice-chairman of Jupiter, a UK-listed asset manager that focuses on UK and European equities, says his company wants to add to its emerging market expertise.

“On a 10 to 20 year view, do we think emerging markets are going to be a bigger part of world economies and stock market indices? Yes. And we’ve been light in this area in terms of expertise and therefore assets, so we’re building it up,” he says.

“In the short term [the emerging market problems have] benefited us, because we’ve had light exposure . . . but longer term I think emerging markets are at the attractive end of the range.”