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Emerging markets entry point signalled?

Some robust numbers from emerging market-focused companies could signal a turn in market sentiment
April 21, 2016

Emerging markets-focused stocks could be regaining their allure after a period of challenged performance.

Specialist asset manager Ashmore (ASHM) posted a robust set of numbers which saw its shares rise nearly 5 per cent after assets under management increased by $1.9bn (£1.3bn,) thanks to $3bn-worth of positive investment performance countering its net outflows.

The group's shares are already up 17 per cent year-to-date and its beleaguered developing market-skewed rival Aberdeen Asset Management (ADN) up more than 12 per cent. The performance of these stocks chime with that of broader indices, with the MSCI Emerging Markets bourse up more than 10 per cent in sterling terms in 2016 - double that of its MSCI AC World rival and comfortably ahead of the FTSE 100.

Back in February, broker Numis moved both the asset managers from 'hold' to 'buy', claiming it knew this "probably won't be the absolute bottom", but that such a thing would be difficult to call.

The recent performance of consumer goods giants Unilever (ULVR) and Reckitt Benckiser (RB.) also speak of renewed vigour in emerging economies.

Emerging market sales at Unilever were up more than 8 per cent compared to a 0.3 per cent drop in developed markets according to a trading update this month, with a similar picture consequently painted in the earnings. Over at Reckitt, its first-quarter statement showed a like-for-like sales jump of 10 per cent to £719m in developing markets.

The rise in emerging market stocks, and those heavily exposed to such economies, could be getting a fillip from the fact markets are less convinced that US interest rates will continue to rise. Dollar-denominated borrowing by emerging markets has increased threefold in the past decade to $6tn and this becomes more expensive to service if US rates rise.

James Sullivan, founder and senior fund manager at Coram Asset Management, said much of the bad news surrounding emerging markets - such as weak commodity prices and slowing growth in China - was mostly priced in meaning it could be a case of "now or never for EM investing".

He added that on a five-year plus time horizon it was "hard to see one not having a chance to make strong returns in this region".

Elsewhere, BlackRock's recently updated five-year investment expectations suggest EM equities could be the third best performing asset class out of the 13 it lists.

That said, Fidelity's recent international analyst survey was bearish on emerging markets, with Europe/Middle East/Africa and Latin America scoring 2.7 compared to 4.3 last year.