Despite all the doom and gloom surrounding capital-hungry Fragile Five countries, real money managers have not abandoned the ship at all.
Aberdeen Asset Management has overweight equity positions in Indonesia, India, Turkey and Brazil — that’s already 4 of the five countries that have come under market pressure because of their funding deficits. The fund is also positive on Thailand and the Philippines.
Devan Kaloo, head of global emerging markets at Aberdeen, says these economies have well-run companies that are well positioned to adjust and enjoy slightly higher return on equity (ROE) than their developed counterparts. He says:
The current shakeout is forcing companies to focus on margins and cut costs, which would bring benefits in the long term. Corporates are more profitable than DM… If you are brave, Turkey has some fabulously run companies.
Even in Russia — where the rouble is possibly the next target of fast money speculators — there are well-run corporates, such as retail chain Magnit.
In Russia there is the next generation of business leaders coming up. People are creating businesses. Magnit has parallels with Walmart, rather than Baron Rothschild.
It’s widely known that some emerging companies have good fundamentals and that they are cheap. But it’s the currency moves that can wipe out any capital gains. However, Kaloo has zero currency hedges on his portfolio. Why is that?
Capital gains make up for FX weaknesses. We’ve gone through the Russian crisis, Asian crisis, TMT crisis and Argentine crisis without hedges… yet we still delivered positive returns. (Betting on where currencies go) is a sure way to madness.
Daniel Wood, emerging debt portfolio manager at BNP Paribas Investment Partners, has gone long Turkish lira, a day after the Turkish central bank delivered a surprise interest rate hike, in part because it was getting too expensive to bet against the high-yielding currency.
More than 10 percent of his portfolio is in Turkish bonds.
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