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Dedicato ai professionisti dell’investimento, questo sito fornisce informazioni sui nostri prodotti, strategie e servizi. Si ricorda che il capitale è esposto a rischi e che i risultati precedenti non costituiscono un’indicazione di quelli futuri.

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Strategy Focus:
4Factor™ Emerging Markets Equity

By: Archie Hart, Portfolio Manager
Volatility is likely to remain high, but we believe there are 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. 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 tangible improvements coming through.

Understanding emerging market cyclicality

Global markets and economies are cyclical – emerging market are even more cyclical. One way to understand emerging markets 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, invariably accompanied by weak economic growth, soaring indebtedness, deficits, rising unemployment, rating downgrades and a political crisis. In response, regulators wake up and strengthen oversight, while governments and corporates tighten their belts. Reform and renewal begin, and the situation travels up the reform scale to point C.
  • Point C: After a strong period of reform and humility, the situation begins to improve, leading almost inevitably to complacence once again, until the next crisis strikes.

Figure 1: The CRIC cycle: Crisis-Response-Improvement-Complacency


Source: Morgan Stanley, 2000.


Reasons to be upbeat

The CRIC cycle has historically been more pronounced 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 that we are seeing indicate determined efforts on the part of emerging market governments to improve their longer-term institutional framework, resulting in a more promising investment environment.

Optimism is legitimate

We would illustrate our optimism by highlighting that emerging market companies have beaten their earnings expectations for five years in a row. We are seeing some good reforms in the state-owned sectors in China and Brazil and policymakers are beginning to drive significant positive change in India and South Korea. However, we are selective, bottom-up investors, and stock specific factors have resulted in us currently being underweight three of the countries where we believe policymakers are beginning to implement positive reforms.

Positioning

Across these countries we observe that a number of our positions in banks are experiencing recoveries from extended bad debt cycles, or are benefiting from 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: Country relative weights


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, 30 September 2017. Numbers are unaudited. Data is run monthly and is based on a pooled vehicle within the strategy. This data is not available at the composite level.
For further information on indices, please see the Important Information section

To read a detailed country-by-country outlook for emerging market equities, please access Archie’s recent extended 14-page review

What makes us different?

  • Our rigorous and consistent 4Factor™ investment philosophy has been employed since 2000 and is continuously improved.
  • Based on traditional and behavioural factors, this bottom-up stock picking investment approach creates adaptable portfolios that tend to be style, size and benchmark agnostic.
  • We have an established team of investment professionals who have ownership of the 4Factor™ investment process.

Past performance is not a reliable indicator of future results, losses may occur.


Specific risks

Currency exchange: Changes in the relative values of different currencies may adversely affect the value of investments and any related income. 
payments nor repay the money they have borrowed. The worse the credit quality of the issuer, the greater the risk of default and therefore investment loss.
Developing market: Some countries may have less developed legal, political, economic and/or other systems. These markets carry a higher risk of financial loss than those in countries generally regarded as being more developed.
Investing in China: Investment in mainland China may involve a higher risk of financial loss when compared with countries generally regarded as being more developed.
Equity investment: The value of equities (e.g. shares) and equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a company default (e.g. bankruptcy), the owners of their equity rank last in terms of any financial payment from that company.

 

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 
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. 

If applicable MSCI data is sourced from MSCI Inc. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.If applicable FTSE data is sourced from FTSE International Limited (‘FTSE’) © FTSE 2017. Please note a disclaimer applies to FTSE data and can be found at www.ftse.com/products/downloads/FTSE_Wholly_Owned_Non-Partner.pdf