Recent years have been wet and windy for emerging market investors. The last year has been particularly stormy, with the global emerging markets sector down a brutal 17.87%, according to figures from MSCI, and that’s despite brighter weather in the last three months, when the index recovered 13.66%.
UK-listed companies with major exposure to emerging markets have been blown about on these storms, but some have withstood the turbulence better than others.
BHP Billiton
The mining sector is helplessly exposed to emerging market turmoil, particularly in metals-hungry China. The world’s biggest miner, BHP Billiton (LSE: BLT), is still trading 40% lower than a year ago, despite rising 21% in the last three months. Worryingly, China continues to slow. First-quarter GDP growth of 1.1% marked a sharp drop from 1.5% in the previous quarter, and is the weakest figure since data collection began in 2010.
China’s growth spurt had to tail off at some point and its demand for iron ore, copper, coal, nickel and zinc may ease further as it matures into a consumption-driven economy. BHP Billiton has been hit both by slowing emerging market growth, and the changing nature of that growth. However, it’s also an oil producer and will benefit from $50 crude, as well as the weaker dollar. I wouldn’t be surprised to see oil drive higher to $60, which would be a further boost, although a shale revival could prevent it climbing beyond that.
Commodity price movements will continue to rage but cost-cutting and sheer economies of scale should secure BHP Billiton. The forecast yield is a realistic 2.9%, the valuation is still keen at 10.1 times earnings. It all depends on where you think China goes next.
Standard Chartered
Asia-focused bank Standard Chartered (LSE: STAN) has been subject to even wilder swings lately, its share price being down 46% in the last year, while rebounding 36% in three months. Now THAT was a buying opportunity for brave investors willing to forgive the bank for past misdemeanours. New boss Bill Winters has a clean slate and a clear mission, and will be working hard to boost standards. But he has a major task ahead of him.
Standard Chartered was probably oversold but my worry now is that it has been overbought. Recent weeks have been fun, with cost savings and falling impairments boosting sentiment, but this is only the start of a long and bumpy road. Broker Jefferies has pointed out that China and Hong Kong will continue to slow and this will hit the bank’s revenue expectations, which it cut by 9.5% for 2016/18, while lowering earnings per share guidance by 48%.
Unilever
Amid all this volatility, global household goods giant Unilever (LSE: ULVR) stands out as a bastion of stability, as it so often does. It’s up 8.52% over the last year (a terrific show given the double-digit year-on-year plunges everywhere else) with recent growth slow but steady. Unilever trades at 20.9 times earnings but it has often been more expensive than that, while its 3.8% yield is relatively generous by its standards. This stock remains a great anchor for your portfolio, whatever emerging market storms throw at us next.
