HEAD-TO-HEAD: Barings versus First State

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Introduction

Emerging market equity markets plummeted in March as investors retreated amid fears that the spread of coronavirus could trigger a credit crisis in the developing world.

However, the sharp declines were followed by equally sudden recoveries, especially Asian stocks (led by renewed enthusiasm for China equities) which comprise around three-quarters of the MSCI Emerging Markets index.

The widely-followed benchmark index is up 1.04% so far this year, according to FE Fundinfo data, but there are significant differences in geographic performance.

Whereas the Emerging Asia index has risen 9.46%, the Latin America index is down 28.67%, despite a brief bounce in late March.

The crisis and its impact are far from over, and are likely to dampen investor sentiment for some time. As the IMF recently noted, the economic impact of the Covid-19 pandemic on emerging market economies has far exceeded the effects of the global financial crisis in 2008.

Compounding the effects of domestic containment measures has been a decline in external demand.

Particularly hit are tourism-dependent countries due to a drop in travel, and oil exporters as commodity prices plunged. Emerging market economies are likely to face an uphill battle for at least the rest of this year, according to the IMF.

Emerging market equity funds are likely to suffer more volatility than usual in this environment, and FSA asked Darius McDermott, managing director of Chelsea Financial Services to compare two such products: the Barings Global Emerging Markets Fund and the First State Global Emerging Markets Focus Fund.

Source: FE Fundinfo, Morningstar. (Data in US dollars, 7 August 2020)

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