When it comes to emerging markets, the larger developing nations continue to offer the most compelling investment opportunities and, on a medium to long-term outlook, particularly Brazil and India, says Jeff Chowdhry, the manager of the F&C Emerging Markets Fund.
The fund manager says Brazil has a very large domestic economy alongside enormous and cost-competitive agricultural, energy and mineral resources, in addition to a strong banking sector.
Although complacency and overconfidence by policymakers could lead the public sector to become an ever-increasing burden on the economy, Chowdhry believes that the stable and prudent economic policy to date has led to low inflation and interest rates, reducing borrowing costs and unleashing spending and investment.
Chowdhry says he’s wary about India's high fiscal deficit and government borrowing programme, not helped by the Government‘s somewhat leisurely decision making process which could slow the growth rate, keeping the fiscal deficit high.
"Nevertheless, the fact remains that India is now one of the fastest growing economies in the world, with a young population who are better educated and more entrepreneurial than China, meaning a better chance of increased foreign domestic investment (FDI)." he commented.
Although Chowdhry believes China offers long-term growth opportunities, he is underweight for the moment over concerns that the current recovery has been propped up by government spending and believes that strength may be threatened in the short-term over the health of the banking sector and a potential property market bubble.
Once concerns abate, Chowdhry will look to increase his exposure.
Looking at short-term opportunities, Chowdhry has added to Russia and Mexico on the belief that both look set to see some recovery this year.
"Russia has huge reserves in a number of resources, including natural gas and oil, and I believe they are ideally placed to benefit from the stabilising oil price,” says Chowdhry.
“I’m also positive that the American markets and economy look set to recover this year, with Mexico being a key beneficiary given their high exposure to the US economy, coupled with their own cheap manufacturing base and competitive currency."
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