Skip to the content

Hermes' Greenberg: Where I’d go passive with a 30-year time horizon

26 August 2014

The group's head of emerging markets says China and India offer the best potential returns for tracker funds over the extreme long-term.

By Daniel Lanyon,

Reporter, FE Trustnet

China and India are still the best markets to buy a passive or exchange traded fund (ETF) for a 30-year time horizon, according to Gary Greenberg, head of emerging markets at Hermes.

The lead manager of the £300m Hermes Global Emerging Markets fund says the two countries’ stock markets have the potential for massive re-rating over the long term, particularly as economic reforms gain traction.

“China has the potential to re-rate once it solves its banking problem and Chinese profitability has the potential to rise while dividends yields are also decent,” he said.

“It could move to around 11 or 12 times earnings from around nine times at the moment and so that plus underlying dividend yields could mean pretty decent returns over time.”

“India isn't as undervalued as China is but the reforms that are taking place could result in a higher growth rate - economically - and this could actually translate into higher earnings growth and therefore better markets.”

“China is really adapting its economic model to more sustainable one and India is doing a similar thing.”

India and China have seen massive stock market gains over the past decade with both the MSCI India and MSCI China trouncing developed market indices, in terms of gains, over the past ten years.

The MSCI India has gained 349.87 per cent over this period while the MSCI China has risen 328.87 per cent.

The highest increase in the major developed markets over the same period was the FTSE All Share which increased by 133.81 per cent, less than half of the two developing markets, while the Topix – the Japanese index – rose just 56.85 per cent.

Performances of indices over 10yrs


ALT_TAG

Source: FE Analytics

However, the Chinese economy has consistently grown more rapidly than India over this period, despite a recent slowdown.

The MSCI India has tended to stay ahead of the MSCI China over this period but also sell off more rapidly during down markets.

For example, during the financial crisis both markets bottomed out in 2008 with a fall of approximately 61 per cent but this occurred over less than 10 months in the Indian market compared to a year for the Chinese market.

Following the election of prime minister Narendra Modi on a pro-business agenda in March, the Indian stock market has rallied and come back to the attention of investors after several years of shaky performance.

Since the beginning of the year the MSCI India has soared more than 25 per cent compared to the MSCI China which is up just 8.81 per cent.


Performance of indices in 2014

ALT_TAG

Source: FE Analytics

Greenberg says while the two markets have taken a boost recently after being largely flat for the past few years, they are at a reasonable entry point – particularly on a longer term view.

“The two emerging markets have been through the mill, but new institutions are being put in place with a long-term focus, valuations are decent and the global backdrop is OK. If you look at what China has done over the last 30 years it is unbelievable, it is awesome.”

“If you look at what India has done over the past seven or eight years, it has also really started to turn into something and it’s not just software services. We own a couple of Indian firms who make auto parts and have a global market share.”

He says one reform in particular could give Chinese equities a boost: “The soon to be launched 'Through Train' in Hong Kong will allow investors to buy Chinese mainland-listed equities to be bought from Hong Kong.”

“It serves a number of purposes but essential allows China to take advantage of yet more capital to transform its economy and its companies.”

Greenberg has been lead manager on the Hermes Global Emerging Markets fund since July 2011, a tricky period for emerging markets due to several sell-offs in the asset class, most notably after last year’s ‘taper tantrum’.

Over the past three years the fund has returned 9.06 per cent while the average fund in the sector made 16.3 per cent and the fund’s benchmark the MSCI Emerging Markets gained 18.07 per cent.

Performance of fund, sector and benchmark over 3yrs

ALT_TAG

Source: FE Analytics


Mark Mobius told FE Trustnet back in June that he would buy an exchange traded fund in the Nigerian stock market on a 30-year view.

He said the Nigerian economy is the standout name in developed, emerging and frontier markets to make a long-term play on an index and that over a 30-year period or more Nigeria will outperform every other market, including developed markets, in terms of total return.

ALT_TAG

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.