UK - Emerging market investments will continue to outperform this year despite political and terrorist risk in Asia, Aberdeen Asset Management claims.
Emerging markets performed strongly last year with the MSCI Emerging Markets Free Index alone rising 36.3%. They are also cheap, as they are trading at around a 35% discount to developed markets, while the average P/E ratio is around 11 times compared to 17 times in developed markets.
Aberdeen head of emerging markets Joanne Irvine expects this run of good performance to continue. But she warned that returns could be hit by further terrorist attacks and a collapse in the value of the US dollar because several Asian countries had pegged their currencies to it.
Irvine said: “The investment case for Asia remains solid. Valuations are still reasonable and continue to remain at a discount to their developed market counterparts. This, combined with rising corporate profitability and improving domestic demand, has reinforced expectations that the recovery will be sustainable.
“The main risks for Asia in the coming 12 months include further terrorist attacks and a collapse in the US dollar. Elections due in Asia in several countries will also be watched closely by investors, particularly in countries associated with higher political risk such as Indonesia and the Philippines.”
Ashmore Investment Management head of research Jerome Booth said the principal threat to returns stemmed from the elections in the Philippines, which has struggled with Islamic militants and an underperforming economy.
In particular, he said the policies of the main presidential challenger – former actor Fernando Poe Jnr - would not be helpful to investors.
“Poe is an unknown quantity and his comments about possibly taking back payments out of the budget aren’t very helpful to investors’ perception of sovereign risk.
”There’s quite a deal of nervousness about the policies that he may bring with him. And that’s against a backdrop of fiscal shortfalls and sporadic tax collection.”
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