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Becket: The emerging markets I’m getting ready to buy

24 February 2014

Psigma’s chief investment officer says he is preparing to increase his weighting to emerging markets, but fear of another sell-off means he is biding his time.

By Thomas McMahon,

News Editor, FE Trustnet

Investors should be preparing to increase their holdings in China and India, according to Tom Becket, chief investment officer at Psigma, but should hold their fire for now.

ALT_TAG Becket (pictured) says that he is eyeing up the cheap valuations in emerging markets but isn’t yet ready to buy back in.

China in particular offers value, he says, but he is staying on the sidelines through fear of a correction in world equity markets.

“We’re getting close to increasing our emerging market equity allocations, taking our presently neutral allocation to overweight,” he said.

“Although pencils are being sharpened, we are not quite there yet, as we are worried that another general equity market correction might occur soon.”

The question of whether investors should be buying emerging markets yet divides opinion.

Plummeting equity prices have left investors hoping for low valuations.

Relative valuation of emerging and developed markets

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Source: FE Analytics

Austin Forey, manager of the £605m JPM Emerging Markets Trust, says that while things may look gloomy on a macro-economic level, low valuations have historically provided an attractive entry point.

Emerging markets have been particularly badly hit by currency movements, but Forey says there are some signs these are now helping economies adjust.

“Low valuations must mitigate a lot of the current pessimism about emerging markets and one thing we know from the past is that the world does not end when gloom and pessimism are widespread; instead, it offers better value, and currencies will revert to the mean, in real terms, in the long-run.”

“While it may be too early to call a definitive upturn in the asset class, we are seeing increasing numbers of interesting opportunities at the stock level, which has always been our principal focus as investors.”

Becket says that the key to looking at emerging markets is to be selective. Investors who treat the asset class as a homogenous sector risk losing out, he warns.

“The last 15 years have seen development across the emerging world, as a whole, but also of different countries in various directions,” he said.

“This means that as we stand in 2014, the emerging world is far more diverse than it was in the years of the Asian financial crisis (late 1990s) and at the time of the last emerging markets slowdown in the great financial crisis of 2007 to 2008.”

“This makes the chances of a general and correlated emerging markets slump far less likely, in our opinion. It also means that idiosyncratic opportunities are on offer for those who are willing to work hard to find them.”


Becket explained to FE Trustnet in a recent interview that he is taking profits from developed world equities and preparing to reinvest in emerging markets.

However, he says that there are some extremely popular markets he is not considering.

Asked by an investor to play “snog, marry, avoid” with emerging markets, he says that Russia and the ASEAN countriues would be definite “avoids”.

“Where would we avoid? There are plenty of countries that are probably not worth the risk, at least while the outlook remains generally uncertain,” he said.

“From a valuation perspective, we still think that the economically attractive Philippines and Indonesia are too expensive. Economic growth should be admired, but only if you are paying the right price for it.”

“Russia would be up among the no-gos, despite the optically attractive valuations that are on offer, as we are far from convinced about the medium-term outlook for the economy and for listed companies’ role in the country.”

“We would also shun the politically problematic and externally dependent countries of Venezuela and Argentina, although they are small parts of the emerging markets equation.”

“We would also be unconvinced by the merits of Turkey, based upon political paralysis, inflation issues and structural financial weakness. Turkey’s many issues are a shame as the demographics are enticing and the country’s geographical location should be a blessing.”

Performance of indices over 1yr

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Source: FE Analytics

Becket is more interested in China, which he thinks is intriguing because it is so unpopular.

“If I could marry anyone other than the long-suffering Mrs Becket, it would be China,” he said.

“You will know from previous missives that I am a committed Sinophile, but one should not let that cloud one’s investment rationale.”

“It doesn’t here. What I find particularly exciting is the pervasive bearishness towards the country.”

“This could make China a classic contrarian investment and the country (mostly via Hong Kong) is a key holding in our emerging market allocations.”

“Loathed by investors and distrusted by economists, China currently offers something that not many other global markets do: value.”

“The Chinese market has been a uniquely poor performer over the last three years and the massive falls allow investors an interesting long-term growth opportunity at a fair price.”


“Yes there will be periods of panic, as we have seen over the last few years, but we would encourage long-term investors to trust in the government's policies and look to the future. The future remains bright and patient investors will be rewarded.”

Performance of indices over 3yrs

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Source: FE Analytics

The manager is also well-disposed towards India, which is facing crucial elections this year.

The country is a major weighting in First State and Aberdeen funds, despite its recent poor performance.

“Sorry ladies, but my snogging days are (mostly) over,” Becket said. “However, my emerging markets snog choice and another area of potentially improving politics is India, where the elections that are coming in the late spring will hopefully bring a new dawn for Indian politics.”

“The good thing for investors is that it surely can't get any worse. We expect resounding change after the election and this should hopefully reignite the economy and spur the Indian equity market higher, benefitting cyclical equities and mid cap companies in particular.”

“India has been classed as a weakly positioned country, because of its structural deficit, but this lazy branding ignores the efforts undertaken by the authorities, particularly the impressive central bank governor (Raghuram Rajan), to balance the financial system.”

“The Indian market is inherently volatile, so this might be a shorter term trade.”

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