Emerging markets are back, so should investors dive in today?



Life goes in cycles, they say, and that is certainly true of investing. Just take emerging markets as an example.

They swung into fashion in the 1990s, until the 1997 Asian financial crisis and 1998 Russian crisis slammed on the brakes.

They rolled back into fashion in the early years of the millennium, as emerging Bric economic superpowers Brazil, Russia, India and, above all, China swept all before them, then came another painful crash.

The MSCI Emerging Markets Index has back-pedalled in four out of the past five years, and suffered a thumping 14.92 per cent reversal last year.

Now the cycle seems to be swinging back in their favour, as a host of fund managers and analysts hail the sector’s recent return to form. The time to buy emerging markets is at the bottom of the investment cycle rather than the top, so should you dive in today?

Richard Turnill, the global chief investment strategist at global fund manager BlackRock, reckons that emerging markets are in a “sweet spot”, helped by the weaker dollar, signs of recovery in China and the recent dramatic pickup in commodity stocks (after last year’s even more dramatic falls).

The MSCI index is up 13.66 per cent in the past three months and investors are taking note, with BlackRock calculating that nearly US$16 billion has rushed into exchange-traded funds (ETFs) in the sector. The crowd of short investors who were betting on further emerging market misery is now drifting towards the exits.

Mr Turnill isn’t getting carried away though; following the recent rally, emerging market valuations are “no longer unambiguously cheap”.

There could be further trouble ahead, especially if the United States Federal Reserve hikes interest rates again. “Fed tightening, a Chinese yuan devaluation or economic slowdown, and a renewed slump in oil prices are all risks to the emerging markets story,” says Mr Turnill.

He expects the rebound to continue for now and he isn’t the only optimist out there. Fund managers Robin Geffen and James Dowey at Neptune are claiming that 2016 will be remembered as the year you should have been buying emerging markets.

Mr Geffen, who runs several funds including Neptune Global equity, has upped his exposure to China and Russia for the first time in years. “People had completely written off emerging markets, but that’s where I think things became interesting. The wholesale selling is now over. None of these markets, apart from Brazil, are as bad as people believe.”

Noting that emerging markets have been through several false dawns, notably this time last year, Mr Geffen adds: “You don’t want to put it all in now, but you want to be building positions that are looking carefully at valuations”.

Probably the best known emerging markets investor of all, Mark Mobius at Templeton, has also found renewed appetite for the sector, saying that despite short-term swings the long-term investment case remains strong.

He points out that economic growth rates are faster than in developed markets, while foreign reserves are greater and debt-to-GDP lower. “Even with major economies like Russia and Brazil in recession, emerging markets overall are expected to grow 4.3 per cent this year, more than twice the rate of the 2.1 per cent growth projected for developed markets.”

Investors may be concerned about China’s slowing growth, but it is still one of the fastest-growing economies in the world.

Mr Mobius reminds investors of key facts they may have forgotten during the downswing: “Market countries account for nearly three-fourths of the world’s land mass and four-fifths of its population, present considerable potential in terms of resources and demographics, and look to be in a strong position to benefit from technological advances.”

He says that too many investors are “underweight” in emerging markets following recent falls, and this could prove costly as they look undervalued compared to developed western markets. So is it time you bulked up on emerging market funds?

Rather than simply pile into the latest hot investment theme, it is always wise to look at what exposure you may already have.

Ashley Owen, the head of investment strategies at independent financial advisers AES International in Dubai, says most investors should have a well-diversified portfolio covering all geographical regions, including emerging markets.

“We believe our clients should have a weighting of no larger than 6 per cent for a balanced portfolio and 11 per cent for an aggressive portfolio. This would be a long-term holding rather than a short-term tactical position.”

Mr Owen suggests that the UAE expats invest in a well-diversified index tracker such as iShares MSCI Core Emerging Markets. “This is a great low-cost way to gain exposure to the region, with a total expense ratio of just 0.25 per cent.”

This fund invests across a globally-weighted spread of emerging markets, including China, Korea, Taiwan, India, Mexico, Russia and a spread of South East Asian countries such as Malaysia, Indonesia, Thailand and the Philippines.

Mr Owen adds that emerging markets remain slightly undervalued, which could make now a good time to invest, although it depends on the country, with India relatively expensive but Russia relatively cheap.

He says you should not invest expecting to make a quick profit. “You should be looking for cautious, long-term capital over many years.”

The investment expert also warns investors to brace themselves for further turns of the emerging market wheel of fortune. The biggest danger is that the Fed hikes interest rates faster than investors currently expect, and emerging market governments could struggle to service their US dollar debts if the greenback strengthens as a result.

Tom Anderson, a regulated investment adviser at Killik & Co in Dubai, agrees that most investors should put only about 10 per cent of their portfolio in the region. “Emerging markets tend to be more volatile than traditional equities, although investors have always expected them to outperform.”

He recommends using ETFs to gain exposure to the region as they have the lowest charges, which will accelerate your returns. “ETFs allow you to track the fortunes of a broad range of markets, whether regionally such as Asia Pacific and emerging Europe or individual countries such as Brazil, China or even the Philippines or Malaysia.”

Mr Anderson says this may be too complex for most investors who might want to hire a professional fund manager to make decisions on their behalf.

Alternatively, you could invest in a spread of generalist funds, he says. “We would use Lazard Emerging Market fund for broad exposure, specialist fund manager First State for China and Asia Pacific, and then the New India trust and Findlay Park for Latin America.”

The investment adviser warns against buying these funds within an offshore bond, which are heavily promoted to expats but are expensive and inefficient, with high charges reducing your overall returns. “By minimising your fund and advice charges you receive as much of the gain as possible,” he says.

Emerging market investors have brushed themselves off and got back in the saddle in recent months, but you should hold on tight, as they will continue to offer a bumpy ride. You need to be ready for the downswings as well as the upswings, so only invest money you do not expect to need for at least five or 10 years, preferably longer.

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COMPANY PROFILE

Company name: Almouneer
Started: 2017
Founders: Dr Noha Khater and Rania Kadry
Based: Egypt
Number of staff: 120
Investment: Bootstrapped, with support from Insead and Egyptian government, seed round of
$3.6 million led by Global Ventures

The more serious side of specialty coffee

While the taste of beans and freshness of roast is paramount to the specialty coffee scene, so is sustainability and workers’ rights.

The bulk of genuine specialty coffee companies aim to improve on these elements in every stage of production via direct relationships with farmers. For instance, Mokha 1450 on Al Wasl Road strives to work predominantly with women-owned and -operated coffee organisations, including female farmers in the Sabree mountains of Yemen.

Because, as the boutique’s owner, Garfield Kerr, points out: “women represent over 90 per cent of the coffee value chain, but are woefully underrepresented in less than 10 per cent of ownership and management throughout the global coffee industry.”

One of the UAE’s largest suppliers of green (meaning not-yet-roasted) beans, Raw Coffee, is a founding member of the Partnership of Gender Equity, which aims to empower female coffee farmers and harvesters.

Also, globally, many companies have found the perfect way to recycle old coffee grounds: they create the perfect fertile soil in which to grow mushrooms. 

Company profile

Company name: Fasset
Started: 2019
Founders: Mohammad Raafi Hossain, Daniel Ahmed
Based: Dubai
Sector: FinTech
Initial investment: $2.45 million
Current number of staff: 86
Investment stage: Pre-series B
Investors: Investcorp, Liberty City Ventures, Fatima Gobi Ventures, Primal Capital, Wealthwell Ventures, FHS Capital, VN2 Capital, local family offices

Company Profile

Company name: Namara
Started: June 2022
Founder: Mohammed Alnamara
Based: Dubai
Sector: Microfinance
Current number of staff: 16
Investment stage: Series A
Investors: Family offices

LA LIGA FIXTURES

Friday (UAE kick-off times)

Real Sociedad v Leganes (midnight)

Saturday

Alaves v Real Valladolid (4pm)

Valencia v Granada (7pm)

Eibar v Real Madrid (9.30pm)

Barcelona v Celta Vigo (midnight)

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Atletico Madrid v Espanyol (7pm)

Getafe v Osasuna (9.30pm)

Real Betis v Sevilla (midnight)

COMPANY PROFILE

Name: Xpanceo

Started: 2018

Founders: Roman Axelrod, Valentyn Volkov

Based: Dubai, UAE

Industry: Smart contact lenses, augmented/virtual reality

Funding: $40 million

Investor: Opportunity Venture (Asia)

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Best Men's Player of the Year: Kylian Mbappe (PSG)

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Price, base / as tested Dh207,846 / Dh220,000

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Cory Sandhagen v Umar Nurmagomedov
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Michael Chiesa v Tony Ferguson
Deiveson Figueiredo v Marlon Vera
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Tickets for the August 3 Fight Night, held in partnership with the Department of Culture and Tourism Abu Dhabi, went on sale earlier this month, through www.etihadarena.ae and www.ticketmaster.ae.

Apple Mac through the years

1984 - Apple unveiled the Macintosh on January 24
1985 - Steve Jobs departed from Apple and established NeXT
1986 - Apple introduced the Macintosh Plus, featuring enhanced memory
1987 - Apple launched the Macintosh II, equipped with colour capabilities
1989 - The widely acclaimed Macintosh SE/30 made its debut
1994 - Apple presented the Power Macintosh
1996 - The Macintosh System Software OS underwent a rebranding as Mac OS
2001 - Apple introduced Mac OS X, marrying Unix stability with a user-friendly interface
2006 - Apple adopted Intel processors in MacBook Pro laptops
2008 - Apple introduced the MacBook Air, a lightweight laptop
2012 - Apple launched the MacBook Pro with a retina display
2016 - The Mac operating system underwent rebranding as macOS
2020 - Apple introduced the M1 chip for Macs, combining high performance and energy efficiency
2022 - The M2 chip was announced
2023 -The M3 line-up of chip was announced to improve performance and add new capabilities for Mac.

Living in...

This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home. 

FIXTURES (all times UAE)

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Monday
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UAE currency: the story behind the money in your pockets
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Mansoor Al Shehail won the 50-man Battle Royal

The Undertaker beat Goldberg

 

RACECARD

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Rating: 3.5/5

Tomb Raider I–III Remastered

Developer: Aspyr
Publisher: Aspyr
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COMPANY PROFILE

Company name: Co Chocolat

Started: 2017

Founders: Iman and Luchie Suguitan

Based: Dubai, UAE

Industry: Food

Funding: $1 million-plus

Investors: Fahad bin Juma, self-funding, family and friends

JOKE'S ON YOU

Google wasn't new to busting out April Fool's jokes: before the Gmail "prank", it tricked users with mind-reading MentalPlex responses and said well-fed pigeons were running its search engine operations .

In subsequent years, they announced home internet services through your toilet with its "patented GFlush system", made us believe the Moon's surface was made of cheese and unveiled a dating service in which they called founders Sergey Brin and Larry Page "Stanford PhD wannabes ".

But Gmail was all too real, purportedly inspired by one – a single – Google user complaining about the "poor quality of existing email services" and born "millions of M&Ms later".

MATCH INFO

Cricket World Cup League Two
Oman, UAE, Namibia
Al Amerat, Muscat
 
Results
Oman beat UAE by five wickets
UAE beat Namibia by eight runs
Namibia beat Oman by 52 runs
UAE beat Namibia by eight wickets
UAE v Oman - abandoned
Oman v Namibia - abandoned

The specs

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On sale: Now

The Bloomberg Billionaire Index in full

1 Jeff Bezos $140 billion
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3 Bernard Arnault $83.1 billion
4 Warren Buffett $83 billion
5 Amancio Ortega $67.9 billion
6 Mark Zuckerberg $67.3 billion
7 Larry Page $56.8 billion
8 Larry Ellison $56.1 billion
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Manchester United v Liverpool

Premier League, kick off 7.30pm (UAE)

The specs

Engine: 6-cylinder, 4.8-litre
Transmission: 5-speed automatic and manual
Power: 280 brake horsepower
Torque: 451Nm
Price: from Dh153,00
On sale: now

Indika

Developer: 11 Bit Studios
Publisher: Odd Meter
Console: PlayStation 5, PC and Xbox series X/S
Rating: 4/5

SPECS

Engine: 4-litre V8 twin-turbo
Power: 630hp
Torque: 850Nm
Transmission: 8-speed Tiptronic automatic
Price: From Dh599,000
On sale: Now

PSG's line up

GK: Alphonse Areola (youth academy)

Defence - RB: Dani Alves (free transfer); CB: Marquinhos (€31.4 million); CB: Thiago Silva (€42m); LB: Layvin Kurzawa (€23m)

Midfield - Angel di Maria (€47m); Adrien Rabiot (youth academy); Marco Verratti (€12m)

Forwards - Neymar (€222m); Edinson Cavani (€63m); Kylian Mbappe (initial: loan; to buy: €180m)

Total cost: €440.4m (€620.4m if Mbappe makes permanent move)

MATCH INFO

First Test at Barbados
West Indies won by 381 runs

Second Test at Antigua
West Indies won by 10 wickets

Third Test at St Lucia
February 9-13

 

pakistan Test squad

Azhar Ali (capt), Shan Masood, Abid Ali, Imam-ul-Haq, Asad Shafiq, Babar Azam, Fawad Alam, Haris Sohail, Imran Khan, Kashif Bhatti, Mohammad Rizwan (wk), Naseem Shah, Shaheen Shah Afridi, Mohammad Abbas, Yasir Shah, Usman Shinwari

MATCH INFO

Who: UAE v USA
What: first T20 international
When: Friday, 2pm
Where: ICC Academy in Dubai

RESULT

Huddersfield Town 2 Manchester United 1
Huddersfield: Mooy (28'), Depoitre (33')
Manchester United: Rashford (78')

 

Man of the Match: Aaron Mooy (Huddersfield Town)

PROFILE OF HALAN

Started: November 2017

Founders: Mounir Nakhla, Ahmed Mohsen and Mohamed Aboulnaga

Based: Cairo, Egypt

Sector: transport and logistics

Size: 150+ employees

Investment: approximately $8 million

Investors include: Singapore’s Battery Road Digital Holdings, Egypt’s Algebra Ventures, Uber co-founder and former CTO Oscar Salazar

THE DETAILS

Solo: A Star Wars Story

Director: Ron Howard

2/5

COMPANY PROFILE

Company: Eco Way
Started: December 2023
Founder: Ivan Kroshnyi
Based: Dubai, UAE
Industry: Electric vehicles
Investors: Bootstrapped with undisclosed funding. Looking to raise funds from outside

Dengue fever symptoms
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If symptoms occur, they usually last for two-seven days