Barings to build up exposure in emerging market equities

PUBLISHED : Thursday, 14 October, 2010, 12:00am
UPDATED : Thursday, 14 October, 2010, 12:00am

Baring Asset Management said yesterday it intended to get ahead of the curve by building up its emerging market equity exposure before other overseas funds piled in and drove up valuations.

'Emerging market equities are still not a consensus story,' said Marino Valensise, chief investment officer at Barings.

'And we have a chance to invest in emerging markets at today's valuations, which are actually quite cheap, rather than wait for the big guys to come in and make things a lot more expensive.'

He said Barings' strategic asset allocation plan, which sets targets over a 10-year period, called for a 20 per cent exposure in emerging market equities. Currently, the firm said it held about 3.7 per cent in that category but would increase that level.

Valensise highlighted the upside in the emerging market-related export, commodity, and domestic consumption sectors. He also said Barings planned to decrease exposure to developed market debt and increase weighting in emerging market bonds because of better yields and potential currency appreciation.

He expected large pension funds in developed markets would start to increase their exposure to emerging markets as securities within the region developed larger representations on global benchmark trading indices like the MSCI All Country World Index.

'A lot of people are going to be sucked into emerging market investing,' Valensise said. 'Passive funds will have to replicate the index, so even if they don't like it, they will have to go in.'

Overseas investors now have more opportunities to pump funds into the region since the current low interest rate environment has made it cheaper to borrow money. That could stretch valuations in regional markets.

'That liquidity will find its way into emerging markets,' said Alan Ayres, product manager for emerging market equities at Schroders.

'If we were on very expensive valuations today, then that would be a concern because it would be telling you that you are getting [near] bubble territory, but we are not at that level.'

Ayres said it could be a concern in the future, however.