London-headquartered GIB Asset Management’s emerging markets active engagement team share their insights on the positive outlook for emerging markets and investment opportunities in the region.

It seems positivity about emerging markets shows few signs of easing. 

At a media event in London last week, Kunal Desai, portfolio manager of the GIB Asset Management Emerging Markets Active Engagement Fund, highlighted that this year  emerging markets are continuing to outperform developed countries.

Desai, Greg Konieczny and Marcin Lewczuk manage the Irish-domiciled Emerging Markets Active Engagement Fund, which is classified under Article 8 of the EU’s Sustainable Finance Disclosure Regulation (SFDR). The fund aims to achieve capital growth and outperform the MSCI Emerging Markets Net Total Return Index.

Desai has recently increased his exposure to China, believing valuations to be attractive, although he remains marginally underweight in the country. He is also quite optimistic about the country’s growth this year, expected at around 5 per cent, and its focus on artificial intelligence (AI). “Compared to US AI valuations, Chinese AI stocks currently trade at discounts of around 50 per cent to their US peers, making them particularly attractive," he said. Holdings include Hong Kong-based tech multinational Lenovo.

A number of wealth managers such as Paris-based Amundi, Carmignac and Indosuez are also positive about emerging markets this year. See here. Reasons for the view include a perception that emerging markets are cheaply valued in relative terms, have youthful demographics and growth potential, and benefit from a weaker dollar because this reduces dollar-denominated debt servicing costs. Concerns remain, however: countries such as Vietnam, one of the liveliest Asian emerging markets, face heavy US tariffs.

South Korean attraction
Desai, who believes that South Korea is a very attractive market, has recently increased his exposure there to overweight. “Equities in South Korea and Taiwan are cheaper, with a strong AI and tech story,” Megan le, senior equity analyst at GIB AM said. Holdings include Korea’s tech semiconductor firm ISC Co, Korean tech firm Komico and cosmetic firm APR Corp. They also include Taiwan’s tech firm Lotes and Taiwan Semiconductor Manufacturing Co (TSMC). Desai remains overweight in Taiwan but recently reduced the overweight.

After the 50 per cent increase in tariffs on Indian exports to the US, due to its continued purchases of Russian oil and high import barriers, Desai said it came as a big surprise and it is a big disadvantage for the country. But he believes that it is manageable. “India can balance out the tariff impact with stimulus measures and a focus on domestic manufacturing and consumption. It is still domestically driven. Some sectors have also been exempt from US tariffs, including pharmaceuticals, energy products, certain electronics and semiconductors,” he said.  Due to the weak performance, he has had neutral exposure to India for the most of the year, and has not increased it to overweight. See more about India here.

The firm also has an overweight position on Latin America.

Top holdings include India’s Krishna Institute Of Medical Sciences, Shanghai-headquartered fast-food company Yum China, and South African tech firm Naspers. Top sectors include IT, consumer discretionary, healthcare and industrials.

Other voices
Vincenzo Vedda, global chief investment officer at German asset manager DWS last week also highlighted that many emerging-market corporations from the sectors of e-commerce, sportswear and e-mobility have outperformed their US counterparts. "We continue to be constructive on selected consumer goods and technology corporations. China remains our preferred investment region since its economy has turned out to be surprisingly resilient," Vedda said.