The relative underperformance of emerging economies to their developed counterparts has persisted beyond the bottom of the June correction, and even fast-growing Asia has not been spared.
The MSCI Emerging Markets index and MSCI Asia Pacific ex Japan index fell heavily from the market high on 22 May, and unlike developed market indices, they have continued on a general downward trend.
So far this year, MSCI Asia Pacific ex Japan is down 2.23 per cent while MSCI Emerging Markets has lost more than 8 per cent.
Year-to-date performance of indices
Source: FE Analytics
As Young correctly predicted earlier this year, there were several warning signs that foreshadowed the correction.
"Falls in Asian currencies and stock markets are not unexpected given the previous inflow of liquidity as a consequence of quantitative easing," he said back in May.
He now adds: "Sooner or later the US Federal Reserve (Fed) was going to have to indicate that the taps would be tightened. Of course, the region is also facing some well-flagged economic headwinds: slowing Chinese growth, the country's banking crisis, India's current account deficit and incompetent governments."
However, Young warns developed market economies face similar and arguably bigger challenges.
The turmoil in Syria is one short-term concern for developed markets, but there are also longer-term fears over rising bond yields and interest rates, and the high levels of debt in developed countries.
To top it all off, Germany, the leading European economy, will go to the polls in September.
And all too often we are reminded that debt-strapped peripheral countries are not out of the woods yet.
For these reasons, Young says investors need to look at the underlying fundamentals in Asia and emerging markets and take a long-term view in spite of the recent volatility.
"We view this as a cyclical slowdown rather than a fundamental change to the secular long-term growth story," he said.
"If you listen to the chief executives of major multi-national companies, their view remains unchanged: for the vast majority, the growth opportunities for their businesses lie in Asia and other emerging markets."
"From a company perspective, there is some comfort. Balance sheets are strong, the quality of management is good and business models are robust."
"Yes, earnings growth is slowing to around 7 to 8 per cent, but this is not unexpected given the global environment."
"The only major change has been in shares prices. Typically Asia trades within a P/E [price/earnings] range of 10 to 20x. Currently P/Es are trading around 12.5x, so towards the bottom end of the range."
However, Young warns there could still be more pain in the sector in the near term, so investors may want to hesitate before piling back in.
"Prices may fall further, but as long-term investors, we view these times as an opportunity to buy more shares in good-quality companies," he said.
In order to mitigate the risk of further falls, but still take advantage of cheap valuations in emerging markets, many experts advise investors to drip-feed their money in – or spread it across several months or even a year, dampening the effect of market falls after they have bought in.
Young heads up one portfolio that covers both the Asia-Pacific and Japan regions – the four crown-rated SJP Far East fund – as well as his top-performing Aberdeen Asia Pacific ex Japan funds.
He also manages a portion of the multi-manager Witan Pacific IT, which is able to invest across Asia, including Japan.
Young’s flagship Aberdeen Asia Pacific fund, which he runs alongside Aberdeen’s Asian equities team, has a stellar long-term track record, picking up 250.31 per cent over the last decade.
The MSCI Asia Pacific ex Japan index has made 203.29 per cent in this time while the average fund in the IMA Asia Pacific ex Japan sector is up 188.53 per cent.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
However, the £2.5bn portfolio has lagged both the sector and index over the last 12 months. It is still up 1.97 per cent over the last year, but has lost 13.6 per cent over the summer, slightly more than both the sector and index.
The bulk of the portfolio is invested in financials, at 40 per cent. Companies such as Overseas Chinese Banking Corp, Standard Chartered and QBE Insurance group feature in its top-10 holdings.
The fund requires a minimum investment of £500 and has ongoing charges of 1.84 per cent.
