Emerging markets are on the rack right now. China is number one target in President Trump’s trade war. Venezuela is in meltdown. Argentina and Turkey are embattled, and there are growing concerns about India and South Africa. Contagion could even spread to the West. However, threats like these also bring opportunities for brave investors.
The strong dollar is at the heart of it. Emerging market countries have loaded up on cheap dollar-denominated debt over the last decade but now it is proving difficult to service, as interest rates rise and QE is reined-in.
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As a specialist emerging markets asset manager, FTSE 250 listed Ashmore Group (LSE: ASHM) should be in the firing line, but today’s trading update for the first quarter to 30 September is positive. It posted net inflows of $1.9bn as clients looked to take advantage of recent price volatility, a trend management expects to continue.
Ashmore grew assets under management by a respectable 3.4% as $2.5bn of inflows lifted its total to $76.bn. It was further boosted by positive market movements of $300m and a similar amount of acquired assets.
CEO Mark Coombs said current uncertainty is leading to mis-pricing, which is throwing up buying opportunities. “We anticipate there will be more opportunities to buy attractively-valued assets and to embed long-term value into portfolios.” We like that kind of fighting talk at the Fool.
One concern is that the valuation doesn’t reflect current uncertainties, as it trades at 16.4 times forecast earnings. Also, share price performance does not reflect its buoyancy, with the stock trading 14% lower than five years ago. It does yield 4.8%, though, with cover of 1.3. My Foolish colleague Kevin Godbold admires its dividend potential. I just wish Ashmore was a mis-pricing opportunity too.
Fund manager Mark Mobius is the doyenne of emerging markets investing, and many still link his name with his trail-blazing investment trust Templeton Emerging Markets (LSE: TEM), which he helmed for 26 years before his recent replacement by Chetan Sehgal, who may be having a baptism of fire.
The fund is up just 22% measured over five years but still beat the wider investment trust global emerging markets sector, up 14% in that time. Over three years it is up 52%, against 29% for its sector. The new manager has had a rough ride, though, with the trust trading 14.5% lower than 12 months ago, worse performance than the sectoral dip of 11.2%.
The £1.67bn giant, launched in 1989, contains big and familiar tech names, including Chinese behemoths Alibaba Group and Tencent Holdings, Samsung Electronics and Taiwan Semiconductor Manufacturing, Indian bank ICICI and Unilever. Tencent has just suffered the biggest market value loss in history, a world record $220bn, hitting the trust’s performance.
Lonely are the brave
A quarter of the fund is invested across Asia-Pacific, with meaty exposure to South Korea and Taiwan, then a broad spread across Russia, Brazil, South Africa, India and Thailand. This gives you a good global reach. It is also trading at a discount of 11.9% to net asset value. Didn’t I say that you need to be brave, though?