Global research reveals emerging markets best prospect

Sanlam Investment Management Global (SIMG) recent research on investment returns post previous recessions and the current global outlook revealed some very interesting facts. South Africans have an aversion to, when investing offshore, to invest in other emerging markets. This could cost them dearly over the next few years. Emerging markets such as India, China, Turkey, Brazil and Indonesia are poised for very strong growth over the next few years, whilst poor growth rates and high debt levels in developed markets (both at individual, corporate and government level) will create a strong headwind in the countries most South African investors traditionally invest in (UK. USA, Europe).

There is a mistaken view that emerging market currencies are poor and the shares have a higher risk. However, research shows that developed market companies had far more balance sheet risk than that of emerging market companies whilst regarding the currencies, with the exception of Turkey, they have not fallen as much as the inflation rate due to the positive capital flows to these countries.

However, despite being positive about emerging markets, there are many very undervalued shares to be found in developed markets, especially in the financial sector.

SIMG’s data base which has individual models of 400 global financial companies (and many more industrial companies) highlights how historically the best investments were made in banks when bad debts were at their peak such as now

Many of the companies SIMG invested in during the first few months of 2009 (based on their extremely attractive valuations) have jumped between 100% and 150% (shares like Great Wall Motors, Adira Dinamika and Banco Industrial Commercial to name but a few)

However, the research show that banks like Barclays and Bank of America (just two examples) have considerably more upside than most emerging market banks DESPITE the poor macro outlook.

“This is the mistake investors make time and again” says Kokkie Kooyman, Global Fund Manager at SIMG, “investors focus on the environment and NOT the valuations.”

Hence, contrary to all conventional wisdom, SIMG’s Global Financial fund and its Best Ideas funds have increased their exposure to the USA considerably during 2009.

“We have many excellent emerging market stocks and are still very heavily invested in Turkey, Indonesia and then also China, India and Brazil, but the real value is now to be found in the USA and UK, but, you have to be selective and do your homework.

Many investors buy an index or invest in one or two stocks. This approach seldom works and is even more dangerous at the moment due to the uncertain macro environment.

But the worst thing to do now is to “sit on cash”. Investing post the depth of the recession has generated excellent returns. Those investors sitting on cash now will be very sorry in 2-3 years time and again make the same mistake of investing after the markets have run.