Emerging economies offer wide investment potential
INDIA should be a star performer for investors seeking value from emerging markets, according to Peter Pleydell-Bouverie, the fund manager of Fidelity Investments Emerging Markets Fund.
Mr Pleydell-Bouverie, whose fund has an 11 per cent stake in Indian stocks, said there was enormous demand because of regulatory problems and the 'custodial morass'.
'This is a powerful positive and it means there is enormous pent-up demand to go into the market. There is a huge array of extremely well managed, high-growth companies on low valuations and this makes it very attractive for investors.' Emerging markets can describe economies from China to South America.
They include 85 per cent of the world's population, 20 per cent of its economy and 45 per cent of all listed stocks.
They are also characterised by a small number of institutional players and high volatility.
Last year, investor gains of between 80 per cent and 100 per cent in emerging funds were not uncommon with the composite index recording a return of 75 per cent.
'Emerging markets outperformed in 1993 because of a major change in the attitude of international investors towards developing markets,' said Mr Pleydell-Bouverie.
He said this had unleashed the first wave of a wall of money that would hit developing markets.
'I say the first wave as there will undoubtedly be more to come. The emerging markets universe encompasses the awesome consumer potential of India, China, Indonesia, the wealth of resources to be found in Latin America and Africa and the competitiveness of the Koreans, Israelis and the Taiwanese . . . the rationale is to seek out seriously undervalued assets.' But much of last year's gain was lost as the markets corrected themselves in the first half of this year.
Mr Pleydell-Bouverie said: 'By the end of last year, it was becoming more apparent that the appreciation was unsustainable. During the first six months, we saw the necessary correction.
'They had been over-bought but we believe the long-term story of emerging markets is not only strong but compelling.' He said one positive aspect of emerging markets was their faster growth compared to that of established markets. This, he said, fuelled stronger corporate growth and, hopefully, favourable stock markets.
The potential downside of emerging markets is their volatility, which arises from political uncertainty, social upheaval and economic fragility.
But Mr Pleydell-Bouverie was upbeat.
'Overall, with emerging markets covering 45 per cent of the 32,500 companies worldwide, the choice available to investors is enormous.'