While some industry sources are concerned about political and currency instability in emerging regions such as ASEAN, other sources say that emerging countries still stand as credible defensive plays.
Rajiv Jain, CIO of Vontobel AM, says that most emerging countries that maintain a currency peg have significant FX reserves, which makes the emergence of a crisis much less likely.
In fact, Jain pointed out that emerging countries such Malaysia and the Philippines are running surpluses. India, he said, is running only a modest deficit.
Foreign exchange reserves rose to $95.3bn, Bank Negara Malaysia disclosed last week. This was higher than $94.7bn on 28 August. The central bank noted that the reserves are enough to finance 7.3 months of retained imports and are 1.1 times the country’s short-term external debt.
“We believe that the emerging markets growth story remains intact. Long-term positive trends, such as the expanding middle class, the growth of working-age population groups and the expansion of the private sector will contribute to emerging markets growth,” Jain told Fund Selector Asia.
Jain added: “Emerging markets will continue to grow at a faster rate then developed economies, although it has moderated over the past few years.”
José Morales, chief investment officer, at Mirae Asset Global Investments (US), shares similar views. He said at Fund Selector Asia’s recent Bangkok event that while emerging markets continue to outperform developed markets, the performance premium is shrinking – making the active search for superior growth equities even more important.
Like Jain, Morales is optimistic about the growth of the middle class in emerging countries. Morales said that middle class consumption would reach $35bn – with Asia Pacific accounting for almost 50% of the figure. Middle-class consumption in 2009 was $21.3bn, with Asia Pacific accounting for less than 25% of the figure.
Looking to the medium term, Jain said, “We believe that emerging countries have learned from [their] past mistakes. On balance, they have more FX reserves and less FX-denominated debt. This makes the likelihood of a systemic emerging market crisis quite low.”
