Mirae Asset Global Investments Releases 2013 Mid-year Emerging Markets Strategy Update
Emerging Markets Expert Sees Pockets of Opportunity in Select Emerging Economies
July 18, 2013
In a report issued today, senior investment professionals from emerging markets expert Mirae Asset Global Investments announced that they believe select emerging economies will likely present pockets of investment opportunity. For the second half of 2013, the Mirae Asset investment team also believes that a discerning approach to stock picking is highly important to navigate uncertain market conditions.
Assembled from contributions by senior investment professionals in Hong Kong and New York, the "2013 Mid-year Emerging Markets Strategy Update" provides an 18-page overview of Mirae Asset's latest insights on the opportunities and risks in emerging markets equity investing for the remainder of the year. Readers can download the report at investments.miraeasset.us/emupdate, which includes supporting statistical graphs and charts.
The report comprises a brief review of the year to date and overview for the next six months on regions and individual markets for Asia/Pacific (including China, India, Association of Southeast Asian Nations (ASEAN) and Korea), Emerging Europe, Middle East and Africa (EMEA) (including Russia, South Africa and Turkey), and Latin America (including Brazil, Mexico, Colombia, Chile and Peru). Regional excerpts from the report appear below, as well as certain portfolio strategies to take advantage of investment opportunities.
Broad Overview: Selective Approach To Choosing Stock Is Critical
As we enter the second half of the year, taking a discerning approach to stock picking is pure necessity amid market conditions plagued by high uncertainty and anxiety. Economic rebalancing and re-adjustments will regularly act as roadblocks to global economic recovery, and although we believe there will be continued market concerns over a potential end to quantitative easing in the U.S., we expect that globally, central banks will continue to funnel liquidity into the market. (pg. 2) As investors realize that central bankers remain vigilant to prevent tail risks and there remains ample global liquidity, we feel investor interest will again return to quality companies and this is where we seek to remain positioned. (pg. 2)
Overview: Asia/Pacific – Economic Data Highly Likely to Surprise on the Upside
Despite a recent downturn in Asia, with the US showing steady GDP growth and European industrial activities stabilizing, we anticipate Asian economic data to improve in the second half of 2013. (pg. 2)
Sectors and Themes: We plan to maintain our preference for consumers and health care, given their high earnings visibility, with industrials and resources being our least preferred. We also reiterate our key investment themes of:
- Rising consumer aspirations in the Asia ex- Japan region backed by rising income;
- Aging populations and the rising demand for health care related services;
- Improving productivity and smart living;
- Funding infrastructure demands in the emerging markets and consumer growth; and
- Clean and efficient energy. (pg. 2)
We continue to be overweight in Hong Kong/China, primarily through large stable panregional companies listed in Hong Kong, in India through exporter and consumption names, and in Thailand and Indonesia primarily through consumption related companies. (pg. 7)
We plan to maintain our underweight in Korea and Taiwan due to a combination of long-term issues, such as poor demographics and short-term constraints that include weak domestic demand and lack of growth in the traditional export growth drivers of technology and heavy industry. (pg. 7)
Overview: EMEA – Pockets of Opportunity Within the Region Remain
Similar to the Asian markets, after a strong rally since late November 2012, the stock markets in the EMEA region plunged in 1H2013 on weak economic indicators combined with weak oil and commodity prices. Due to a bleak global growth outlook, oil and commodity prices have hovered at or below their 2012-averages. Nonetheless, pockets of opportunity within the region remain. (pg. 10)
In Russia, we remain positive on consumer companies and banks that are set to benefit from the structural growth story of stable growth in retail sales and loan growth. In Turkey, we expect to witness meaningful acceleration in the Turkish economy backed by a rebound in domestic demand, despite recent protests. Thus, it is important to invest in names in Turkey that will benefit from economic growth and increased domestic consumption. (pg. 10)
Meanwhile, we remain cautious on South African equities given slow economic growth, anticipation of future labor unrest, and heightened vulnerability to the Rand. (pg. 2)
Overview: Latin America – Mexico as Relative Outperformer
Latin America has remained one of the weakest performing regions across global equities YTD, with all major markets in the region registering negative absolute returns in USD terms. Mexico has been the relative outperformer while Peru has been the main laggard. Moreover, regional currencies have weakened across the board with the Brazilian Real sharply depreciating since the end of last year. The Chilean Peso, Colombian Peso and the Peruvian Nuevo Sol PEN have all also weakened against the USD in response to a combination of rate cuts and weakening economic data. (pg. 15)
Although Mexican banks and retailers are anticipating a recovery in the latter half of the year, we expect earnings to remain soft. Meanwhile, Brazil remains out of favor given weak earnings momentum and stagnant economic data. (pg. 2)
Our preference remains on secular domestic growth stories such as Brazilian retail and apparel, banks across the Latin American region, healthcare and insurance, and certain cyclical opportunities including cement, toll roads and commercial real estate. (pg. 16)
We have a cautious view on Mexican telecoms and developers, but despite this are selectively positive on Brazilian developers based on an approaching inflection point in cash flow generation and favorable valuations. Exporters across the region may see some benefit from recent currency depreciation, though we do not yet see a compelling long-term investment case for the Brazilian steels or pulp producers, preferring exposure to iron ore and paper / packaging, based on balance sheet strength and superior market positioning. (pg. 16)
The report reflects thinking of Mirae Asset's global team of investment professionals, including:
- José Gerardo Morales, CFA: CIO – Mirae Asset Global Investments (USA) - US and EMEA
- Young Hwan Kim: Deputy CIO – Mirae Asset Global Investments (USA) - Latin America
- Rahul Chadha: Co-CIO – Mirae Asset Global Investments (HK) - Asia Pacific
- Byung Ha Kim: Co-CIO – Mirae Asset Global Investments (HK) - Greater China
There can be no guarantee that any investment strategy will be successful. All investing involves risk, including the potential loss of principal.
Emerging Markets Risk - The risks of foreign investments are typically greater in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be changing rapidly, which can cause instability and greater risk of loss. These countries are also more likely to experience higher levels of inflation, deflation or currency devaluation, which could hurt their economies and securities markets. For these and other reasons, investments in emerging markets are often considered speculative. Similarly, investors are also subject to foreign securities risks including, but not limited to, the fact that foreign investments may be subject to different and in some circumstances less stringent regulatory and disclosure standards than U.S. investments.
Equity Risk - equity investments are more volatile and carry more risk than other forms of investment including investments in high grade fixed income securities.
Geographic Concentration Risk - A small number of companies and industries may represent a large portion of the market in a particular country or region, and these companies and industries can be sensitive to adverse social, political, economic or regulatory developments in that country or region.
Past performance is no guarantee of future results.
You should carefully consider the investment objectives, risks, charges and expenses of the Mirae Asset Discovery Funds before making an investment decision. A prospectus with this and other information about the Funds may be obtained by visiting www.miraeasset.com or by calling (866) 335-3417. Please read the prospectus carefully before investing as it explains the risks associated with investing in international markets.
Mirae Asset Global Investments (USA) LLC is the investment advisor for the Mirae Asset Discovery Funds.
The Mirae Asset Discovery Funds are distributed by Funds Distributor, LLC.
About Mirae Asset Global Investments
Mirae Asset Global Investments is one of the world's largest investment managers in emerging market equities (Investments & Pensions Europe, January 2014). With over 550 employees, including 123 dedicated investment professionals, Mirae Asset offers a breadth of emerging markets expertise. Mirae Asset's offices are located in Australia, Brazil, Canada, China, Colombia, Hong Kong, India, Korea, Taiwan, the U.K., the United States and Vietnam. The firm manages over $56 billion in assets globally through a diversified platform to offer market-leading franchises in traditional equity and fixed income products, ETFs and alternative strategies, such as real estate, private equity and hedge funds. Mirae Asset Global Investments (USA) LLC is focused on providing equity and fixed income investment advisory services to mutual funds, foreign investment trusts and institutions. (www.miraeasset.com)
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