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Stocks, regions and sectors: five top EM equity PMs’ playbooks

EM equity markets are in relatively good shape and investors are keen to buy in. Rob Griffin talks to leading investors about where they are casting their nets at a stock, sector and regional level. In the first part, he looks at stock exposure.

Emerging market equity managers are finding plenty of attractive opportunities across a broad range of sectors and countries.

Mike Gush, co-manager of the Baillie Gifford Emerging Markets Growth fund, believes many of these markets are actually on a better footing than they have been for some time.

‘We continue to find businesses with strong growth prospects, excellent competitive advantages, attractive financials, and sensible management teams,’ he says.

Gary Greenberg, who runs the Hermes Global Emerging Markets fund, agrees. He believes these areas are reasonably valued, despite a slowdown at both the country and stock level.

However, he doesn’t believe his companies are experiencing stress. In fact, he points out they are still growing, with balance sheets in good shape.

‘There’s nothing particularly wrong, it’s just a little less buoyant than it used to be,’ he says. ‘This could actually result in higher dividend yields and share buybacks.’

Stock selections

Chinese insurer Ping An is well positioned to benefit from growth in the Chinese life and health insurance market, says Roger Merz (pictured), manager of Vontobel Fund mtx Sustainable Emerging Markets Leaders fund.

‘Its product mix and agile product development has left it less vulnerable to new regulations, which, in contrast, has materially impeded the growth of peers,’ he says.

Taiwan Semiconductor is another prominent position in the portfolio. ‘We expect rising barriers to entry in leading-edge semiconductors to lead to market share consolidation,’ Merz says.

Gonzalo Pangaro, manager of the T Rowe Price Emerging Markets Equity fund, also likes semiconductors, citing Taiwan Semiconductor and SK Hynix as two of his favoured names.

He says the trade war and concerns about global growth have resulted in these semiconductor companies trading at attractive levels.

‘These companies have a very strong position within a market that is exposed to significant secular trends over the short, medium and long term,’ he says.

Meanwhile, HDFC Bank, a leading private bank in India, is one of the favoured positions of Alex Duffy, manager of the Fidelity Global Emerging Markets fund.

‘It has significant growth opportunities as it is well-placed to take advantage of India’s low credit to GDP and market share gain from public banks,’ he says.

He also praises the management team. ‘It has consistently delivered superior growth relative to the industry, while maintaining the best asset quality throughout different cycles,’ he adds.

However, Duffy continues to avoid state-owned financials, as he believes the primary interests of the majority shareholders are not aligned to maximising the risk/return-adjusted profile.

Looking for new ideas

Elsewhere, Norilsk Nickel, the global leader in battery grade nickel, is the largest position in the materials sector for Baillie Gifford’s Gush (pictured).

‘We predict strong long-term demand as electric vehicles continue to scale and batteries are used in more and more high-capacity applications,’ he says.

Other positives include very limited new supply across the nickel industry, he says. ‘Norilsk Nickel will be a very attractive way to benefit from price strength in the nickel market,’ he adds.

Moving on to a different hunting grounds, Hermes’ Greenberg has found plenty of attractive holdings in Turkey, to which he has exposure as part of a contrarian approach.

Two key examples are Avivasa and Mavi. ‘Mavi makes fashionable blue jeans, while Avivasa is an insurance company that’s priced extremely cheaply, but is very well run, with a good yield and long-term prospects,’ he says.

He also cites NARI of China, which is helping to improve the country’s electrical grid. ‘Managing the Chinese grid efficiently is very valuable and this company really has the pole position,’ he says.

Elsewhere, he likes Mahindra Logistics in India. ‘The country’s logistics are undeveloped and their efficiency is low, so any company that can help has a bright future,’ he says. ‘Mahindra Logistics is a well-run and attractive company.’

This article originally appeared in a supplement published with the November edition of Citywire Selector magazine.

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