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Steven Andrew: Why you shouldn’t worry about China or emerging markets

22 January 2016

The FE Alpha Manager, who co-manages three multi-asset funds at M&G, says that investors are being “beguiled” into worrying about the impact of China’s growth slowdown without knowing the actual repercussions it will have on their portfolios.

By Lauren Mason,

Reporter, FE Trustnet

Investors are being “beguiled” into being worried about emerging markets and the China growth slowdown without being fully aware of the effect they will have on their portfolios, according to M&G’s Steven Andrew (pictured).

The FE Alpha Manager, who co-manages M&G’s Income AllocationPrudent Allocation and Episode Income funds, says that anything factual is often ignored in a state of panic, which causes investors to make erratic and emotional decisions.

Markets have been particularly volatile over recent months due to nerves surrounding the commodity price collapse, China’s slowdown and various other headwinds that reared their heads in 2015, causing a mass sell-off in August last year which has since been dubbed ‘Black Monday’.

This sentiment has carried over into 2016, with the FTSE 100 officially plunging into a bear market on Wednesday.

Performance of indices in 2016

Source: FE Analytics

However, Andrew says that a lot of negative investor sentiment is the result of pessimistic press coverage and fear-inducing articles written by investment writers, or as he describes them “entertainers”.

“It’s very important when you’re listening to the entertainers spinning a load of yarn about the future and telling you a narrative about recession and about China falling so quickly that it’s inevitable that it leads to a disaster, to look at the explanation,” he said.

“You have to try to draw a straight line between ‘cause’ and ‘effect’, because not a single [investment writer] is going to articulate that properly in terms of how China slowing down turns into bad news for us fundamentally.”


The manager explains that panicking is of course counter-intuitive, and that any investor is able to reach a worrying conclusion based on any of the statistics they focus on or the articles they choose to read.

On top of this, he says that when investors scare themselves they stop looking for tailwinds or attractive opportunities in markets.

“There’s every reason to terrify yourself with all manner of things and if I want to reach such a scary conclusion about the world and what’s going on right now then fine, it will pass half an hour and it will be reasonably entertaining, but it won’t actually enlighten me or anybody in any way whatsoever,” Andrew continued.

“We can talk about slowing growth, collapsing commodity prices, corporate defaults – it’s all scary-sounding stuff – but what does it mean and are there any counterpoints? Are there any consequences? Who are the winners, to counteract the dire experiences of the losers?”

The manager refers back to several years ago when high levels of inflation caused many UK investors to worry about the income squeeze debilitating household spending power and consumer strength.

Now, he says, this has reversed and points out that the low oil price has essentially led to a tax cut for UK and US households.

“Not only does the low oil price help to alleviate the burden and the pressure among households, but it also leaves more money aside for people to spend on other things, and you’ve seen that through real disposable income rising in the US and real consumer spending,” he said.

“It’s good news. We seem to have allowed ourselves to be beguiled by so-called experts who come out and say, ‘this energy price-cut is a harbinger of doom and we should all fear it’.”

“If they’re saying that, we should demand an explanation. How is the consumer in all of this affected? It affects them in a positive way and we should be trying to exploit that.”

An area of the global market Andrew says is particularly thriving due to low oil prices is the US auto production sector which, according to the manager, is the single-strongest element of US customer production today. This, he highlights, shows that the lower cost of importing oil is beneficial for numerous industries as well as households.

He adds that the benefits don’t just stop at the developed world, and points out that despite being categorised as one area of the market, many emerging market regions are oil importers and are likely to see improved fiscal deficits as a result.

As such, the manager says that the combination of negative investor sentiment and the individual benefits felt by some emerging market economies has opened up potential buying opportunities.

He is seeing particularly attractive diversification opportunities in emerging market FX, which he believes will provide investors with healthy returns from relatively small exposures.


“The rouble has collapsed, but I haven’t felt inclined to take on that one. I’ve felt inclined towards the Brazilian real and the Mexican peso given the fundamentals seem good and the pricings overcompensate us,” Andrew said.

“We’re getting a decent number in a currency that is beaten up simply for its categorisation as an emerging market, when its biggest single trading partner by far, the US, is actually doing very well from a fundamental perspective. We’re being enthusiastic about taking that stuff on. Should we be worried about China? Well, it’s interesting, it’s a distraction and it’s big.”

“A lot of the supposedly sophisticated arguments seem to just concentrate on the fact that it’s really big. Yeah okay, we get the fact that’s it’s big, and we get the fact that it’s slowing down, but please provide an explanation as to how those factors relate into something meaningful for me in a positive sense.”

Performance of Andrew vs peer group composite


Source: FE Analytics

Since M&G’s multi-asset range was launched in 2010, Andrew has outperformed his peer group composite by 8.17 percentage points, providing a total return of 24.93 per cent.

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