Navigation Search

Select your location and role to view strategy and fund content

  • Global homepage
  • Australia
  • Botswana
  • Denmark
  • Deutschland
  • España
  • Finland (Suomi)
  • France
  • Hong Kong (香港)
  • Ireland
  • Italia
  • Luxembourg
  • Namibia
  • Nederland
  • Norway
  • Österreich
  • Singapore
  • South Africa
  • Sweden (Sverige)
  • Switzerland
  • Taiwan (台灣)
  • United Kingdom
  • United States
  • International
Professional Investor
  • Professional Investor

Tailored for investment professionals this site provides information on our products, strategies and services. Please remember capital is at risk and past performance is not a guide to the future.

By entering you agree to our Terms & Conditions

Login to My Investec

Improving emerging markets equity cycle

Archie Hart, Portfolio Manager
Volatility in the asset class is likely to be particularly high, but we believe there are now reasons to be cautiously optimistic

Volatile, but improving

Emerging market equities can be highly volatile and tend to move in deep cycles. This means there are times when they will pay and times when they don’t. In retrospect, these cycles are easy to identify, but tough to forecast in advance. However, we believe there is increasing evidence that many emerging market countries, governments and companies are now beginning to respond to the challenges facing them, with evident improvements coming through.

Understanding EM cyclicality

Global markets and economies are cyclical – emerging markets are more cyclical still. One way to understand emerging market cyclicality is Morgan Stanley’s CRIC theory (Crisis-Response-Improvement-Complacency, see Figure 1).

The CRIC cycle in action:

  • Point A: Investors, governments, corporates and investors have become complacent. Growth is very strong, accompanied by euphoria and little reform (the y-axis). However, at some point the music stops and a crisis ensues, leading to point B.
  • Point B: Government, regulatory and corporate discipline has broken down and a crisis has emerged, invariably accompanied by weak economic growth, soaring indebtedness, deficits, rising unemployment, rating downgrades and political crisis. In response, regulators wake up and tighten oversight, while governments and corporates tighten their belts and reform and renewal begins, and the situation travels up the reform scale to point C.
  • Point C: After a strong period of reform and humility, things begin to improve, leading almost inevitably to complacence once again, until the next crisis strikes.

Figure 1: The CRIC Cycle in action
The CRIC cylce: Crisis - Response - Improvement - Complacency

Source: Morgan Stanley, 2000.


Reasons to be upbeat

The CRIC cycle has historically been more cyclical and a bit wilder in nature among emerging markets, as weaker institutions tend to result in more exaggerated ‘overshoots’ and ‘undershoots’. While this may sound a little bleak for emerging market investors, we are in fact more upbeat on emerging markets than we have been for some time. We believe there are many strong indications that we are in the ‘Response-Improvement’ part of the cycle. Some of the changes we are seeing indicate real efforts to improve the longer-term institutional framework of many key emerging markets, resulting in a more promising investment environment.

Optimism is legitimate

We would illustrate our optimism by focusing on a few countries where we believe policymakers are beginning to drive significant positive change: Brazil, China, Hungary, India and South Korea. These five countries together account for almost 60% of the portfolio at the time of writing. However, we are selective, bottom-up investors, which means that we are currently underweight three of the countries where we believe policymakers are beginning to implement positive reforms.

Across these countries we observe that a number of our positions in banks are experiencing recoveries from extended bad debt cycles, or seeing a more risk-aware/returns-focused management. We also have some positions in basic materials stocks, which are beginning to benefit from China’s more proactive stance in closing surplus capacity. In India, we are primarily positioned in stocks which will benefit from rising consumption and incomes in that country, while in eastern Asia we have a number of positions in China’s high-growth internet stocks and an overweight position in Samsung Electronics.

Figure 2: Emerging Markets Equity Strategy
Country relative weights

The example of the holdings is intended to reflect the typical sector and geography that could be deployed by the Strategy to generate the target returns. There is no assurance that Investec will be able to identify or secure investments in securities substantially like those discussed and the above is not intended to represent a summary of buy, sell or hold recommendations. The portfolio may change significantly over a short period of time. Source: Investec Asset Management, portfolio stock weights relative to MSCI Emerging Markets NR Index, 31.01.17. Numbers are unaudited. Data is based on a pooled vehicle within the Strategy. For further information on indices and investment process, please see the important information section.

Archie’s recent extended 14-page review


If you have any questions or would like more information on the topic please contact us.

Important Information
The information may discuss general market activity or industry trends and is not intended to be relied upon as a forecast, research or investment advice. The economic and market views presented herein reflect Investec Asset Management’s (‘Investec’) judgment as at the date shown and are subject to change without notice. The value of investments, and any income generated from them, can go down as well as up and will be affected by changes in interest rates, exchange rates, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets invested in.

There is no guarantee that views and opinions expressed will be correct, and Investec’s intentions to buy or sell particular securities in the future may change. The investment views, analysis and market opinions expressed may not reflect those of Investec as a whole, and different views may be expressed based on different investment objectives. Investec has prepared this communication based on internally developed data, public and third party sources. Although we believe the information obtained from public and third party sources to be reliable, we have not independently verified it, and we cannot guarantee its accuracy or completeness. Investec’s internal data may not be audited. Any decision to invest in securities or strategies described herein should be made after reviewing the prospectus and conducting such investigation as an investor deems necessary and consulting its own legal, accounting and tax advisors in order to make an independent determination of suitability and consequences of such an investment. This material does not purport to be a complete summary of all the risks associated with this Strategy. A description of risks associated with this Strategy can be found in the Prospectus or other disclosure document for the fund or Strategy. Copies of such documents are available free of charge upon request. Investec does not provide legal or tax advice. Prospective investors should consult their tax advisors before making tax-related investment decisions.

Investment Team
There is no assurance that the persons referenced herein will continue to be involved with investing for this Strategy or Fund, or that other persons not identified herein will become involved with investing assets for the Manager or assets of the Strategy or the Fund at any time without notice.

Investment Process
Any description or information regarding investment process or strategies is provided for illustrative purposes only, may not be fully indicative of any present or future investments and may be changed at the discretion of the manager without notice. References to specific investments, strategies or investment vehicles are for illustrative purposes only and should not be relied upon as a recommendation to purchase or sell such investments or to engage in any particular Strategy. Portfolio data is expected to change and there is no assurance that the actual portfolio will remain as described herein. There is no assurance that the investments presented will be available in the future at the levels presented, with the same characteristics or be available at all. Past performance is no guarantee of future results and has no bearing upon the ability of Manager to construct the illustrative portfolio and implement its investment strategy or investment objective.

Performance Target
The target is based on Manager’s good faith estimate of the likelihood of the performance of the asset class under current market conditions. There can be no assurances that any Strategy or Fund will generate such returns, that any client or investor will achieve comparable results or that the manager will be able to implement its investment strategy. Actual performance of investments and the Fund or Strategy overall may be adversely affected by a variety of factors, beyond the manager’s control, such as, political and socio-economic events, adverse changes in the interest rate environment, changes to investment expenses, and a lack of suitable investment opportunities. Accordingly, Performance Targets may be expected to change over time and may differ from previous reports.

Specific Portfolio Names
References to particular investment or strategies are for illustrative purposes only. Unless stated otherwise, the specific companies listed or discussed are included as representative of the Strategy or Strategies. Such references are not a complete list and other positions, strategies, or vehicles may experience results which differ, perhaps materially, from those presented herein due to different investment objectives, guidelines or market conditions. The securities or investment products mentioned in this document may not have been registered in any jurisdiction. More information is available upon request.

Indices are shown for illustrative purposes only, are unmanaged and do not take into account market conditions or the costs associated with investing. Further, the manager’s strategy may deploy investment techniques and instruments not used to generate Index performance. For this reason, the performance of the manager and the Indices are not directly comparable.

Some of the funds displayed on this page may not be registered in your region and will therefore not be available for sale . Please visit to check registration by country.