Manufacturing quality has improved substantially. So has corporate governance in general. And an added attraction is how surprisingly high some dividends are today.
Asian managements have learned the hard way to be conservative. We see little evidence of reckless expansion or mergers and acquisition activity. Instead, many companies have healthy balance sheets and are using strong cash flow to deliver dividends or to buy back shares – a smart move when share prices are depressed.
We cannot deny that in the past five years many EM strategies have disappointed, and the index has lagged developed market indices. I am a strong believer in active management in this area.
Since April 2015 the MSCI EM GBP index has delivered 50.4 per cent (to May 31 2024); the IA Global EM sector average has been 57.5 per cent; we have delivered 101.9 per cent.
It has been a challenging decade for EM equities, and valuations in many areas like Brazil, Korea, South Africa and Turkey look cheap. Within each of these countries it is possible to find stable, high-quality businesses at depressed valuations.
I believe the asset class is on the cusp of a recovery, with several growth drivers, including stimulus measures and falling interest rates, that should offer powerful support to demand.
The mission Agtmael embarked on 40 years ago continues today. Earlier this year the World Bank published a new raft of data in a bid to “provide transparency and inspire investor confidence” in EMs.
Investors would do well to look beyond all the nuances and disputes over the terminology of what constitutes an EM. It is also time, perhaps, to challenge some of their own preconceived ideas and prejudices.
This is a sector that is currently rich in opportunity for the selective stock-picker.
Raheel Altaf is manager of the Artemis SmartGARP Global Emerging Markets Equity Fund
