Last year was characterised by dramatic disparities in the performance of different regional markets. Data from FE Analytics shows that the MSCI China index was down 17.8 per cent in 2011 while MSCI Indonesia was up 6.79 per cent.
Lewis, the manager of the £67m Cavendish Worldwide fund, says that the most successful global managers in 2012 will make the majority of their returns from fundamental economic growth rather than from identifying the right companies.
"One is always going to have an advantage from picking the right stocks but if you have a difference of performance between markets of 40 per cent or more – as we’ve seen in 2011 – even the best stock-picker is going to do badly if they are in the wrong market."
"It’s very important to be in the right market and if you get that right you can add value by being in the right stocks after."
Lewis says that some markets are more suited to stock-pickers than others.
"One of the easiest places to add value at the moment is in a mid-sized market with a relatively new investment community," he explained. "One of the hardest places to add value is in a large market with a lot of sophisticated investors."
"As sophistication rises, markets become more efficient and mis-pricings are fewer and further between. If a market is too small there simply aren’t enough stocks and all the stocks will go up or down together. In the emerging world our ideal markets are not the smallest ones or the largest developed ones."
Data from FE Analytics shows the Cavendish Worldwide fund has returned roughly the same as the MSCI All Country World Index over the last one, three and five years. Over the last decade the fund has returned 91.7 per cent while the index has returned 56.39 per cent.
Performance of fund vs index over 10-yrs
Source: FE Analytics
One of the biggest concerns for investors this year is how China will respond to the government’s monetary tightening policy, aimed at slowing unsustainable economic expansion.
However, Lewis says that even if the policy has been a little overcooked and China experiences a hard landing, the region should still provide investors with decent growth.
"The problem with these markets is that economic policy can be heavy-handed," he said. "Perhaps there may be some evidence of over-adjustment but nonetheless the policies that these markets have adopted will do the trick. The likes of Brazil, India and China will show a positive return in 2012 though those markets which are primarily commodity dependent will be weaker than those which are secondary manufacturers."
Analysts have also raised concerns that poor economic growth in the West will impact exporters such as China, as there will be much lower demand.
Lewis, however, thinks that companies are now tapping into the almost unlimited potential of the consumer story within China and other Asian economies.
"I think that Asia and other emerging markets can offer a great deal in 2012 despite the fact that demand from the West will be subdued," he explained. "Asia now trades increasingly with itself. China trades with Japan and with other emerging markets and that is good news for investors. In addition we are seeing stronger and stronger demand from consumers in Asia and that is good for the economy."