Medecin says that across Carmignac’s three emerging markets portfolios, the group is buying into some fast-growing countries that are producing stock market returns that even the larger emerging markets countries would be proud of.
"Thailand, Indonesia, the Philippines, Turkey and even Saudi Arabia are doing extremely well in terms both of economic outlook and stock market performance," he said.
Data from FE Analytics shows that the Thai and Turkish indices have rocketed over the short-term.
The Stock Exchange of Thailand has made 41.41 per cent over the past year, while the MSCI Turkey index has made 50.48 per cent.
Performance of indices over 1yr
Source: FE Analytics
The ASEAN region, which involves Indonesia and the Philippines as well as Thailand, has been picked by a number of analysts as one with great potential in the coming years.
Medecin says that the best way to build these markets into a portfolio is to use them as a supplement to core holdings in the major markets of Brazil, China and India.
"They don’t have the breadth and depth as in larger countries," Medecin said.
"However, one should not dismiss smaller countries because there are great opportunities there."
"But it is much more difficult to construct a global portfolio out of just those countries."
He adds that China still has a lot to offer, even if it seems to have fallen out of favour recently after mediocre stock market performance.
"We are invested in China and have been in China for a long time," he said.
Medecin says consumer companies in particular are "experiencing the benefits of a rising standard of living in China".
Some of the best ideas across the group’s three emerging markets portfolios are companies exposed to this theme, he adds.
Firms such as Chinese food manufacturer Want Want, luxury retailer Richemont Group and gaming firms such as Wynn Macau and Las Vegas Sands are all benefiting from the population spending more money and time on leisure.
However, he admits China has seen a slowdown in growth over the last five years.
Medecin says China can combat this slowdown by playing to the massive untapped consumer demand in the country.
"The most obvious issue to tackle is the contribution of investment to growth in the overall Chinese economy. It is an economy that needs to consume more and invest less."
"Investment is still playing a role but a diminished role, while consumer demand has been pretty stable."
"Investment contribution to economic growth has gradually decreased and now represents a smaller percentage of the total. Now consumption should become the main growth driver."
"Consumption is fairly resilient and stable," he added.
Medecin says emerging markets are not without significant challenges.
In China he highlights the need for the country to tackle its massive pollution problems, but says one of the biggest issues plaguing the leading Asian economy is government involvement in the business sector.
"There are quite a few large state-owned enterprises that are not managed for profit but by political decisions," he said.
"This leads to a misallocation of capital. We’re far from being complacent on that situation."
"Not everything is rosy in China. You need to be selective about where you want to invest."
He says the team has been selective overall when investing in core economies, particularly in Brazil, because government policies have hurt companies in the past.
"We are slightly negative on Brazil because government policies have been damaging," he said. "It is one of the few countries in the world where inflation remains very sticky."
He says there is an imbalance in the South American country, where production capacity has not kept up with demand, falsely inflating the cost of goods and services which would otherwise have remained cheap.
Medecin says the team does like holdings such as Companhia de Concessoes Rodoviarias (CCR) which manages toll roads in Brazil, and retailer Companhia Brasileira de Distribuição (CBD).
"CBD is a fantastic investment," he said. "It’s a company with very strong management and the retail sector is a sweet spot in Brazil."
Investors are often wary of India because government policy has not had the desired effect, particularly on inflation, in recent years, but Medecin says this is not a reason to avoid the country entirely.
"People should watch carefully in India because the country desperately needs reform, but there are regions in the country such as Gujarat where those reforms have been conducted successfully," he explained.
"If that is generalised to the entire country, India would be a very, very attractive investment geographically."
Medecin says it is all about doing research in emerging markets and finding the best places to add value.
"You can’t judge emerging markets as a whole because situations are very different from one country to another," he added.
The firm manages three emerging markets portfolios, including the five crown-rated Carmignac Emergents fund, headed up by FE Alpha Manager Simon Pickard.
Other portfolios include the balanced Carmignac Emerging Patrimoine fund, co-managed by Pickard, Charles Zerah and Frederic Leroux, which combines fixed income and equity exposure in order to provide good returns with low volatility.
Xavier Hovasse and David Park head up the Carmignac Emerging Discovery fund, which invests in quality companies further down the market cap spectrum.
This article was written in collaboration with and is sponsored by Carmignac Gestion.
