Fabiana Fedeli, Robeco
“One of the key risks is earnings. You have seen disappointments in earnings and we expect more disappointments,” said Fabiana Fedeli, Robeco’s global head of fundamental equities and portfolio manager for emerging markets, at a media briefing in Hong Kong yesterday.
Source: Robeco
Fabiana explained that earnings have slowed because of the uncertainty caused by the US-China trade war and the slowing of China’s economy. China’s export demand impacts other countries in Asia that are in the production supply chain.
“This is an area that we have to keep an eye on, as well as the [monitoring] improvement in the global economic outlook.”
Adding to Fabiana’s concerns are geopolitical risks, particularly in Asia. For example, Indonesia, Thailand and India are having their elections early this year.
“Any populist measures or social disorder can come from these,” she said.
When is the time to buy?
Despite the risks in emerging market equities, Fedeli believes now is the time to buy emerging market equities, adding that the asset class is forecast to outperform most of the categories in the next five years.
Projected annualised returns 2019-2023
| Developed market equities |
4% |
| Emerging market equities |
4.50% |
| German government bonds |
-1.25% |
| Developed global government bonds |
-0.25% |
| Emerging government debt (local) |
3.75% |
| Investment grade credits |
1% |
| High yield |
1.50% |
| Listed real estate |
3.25% |
| Commodities |
4% |
| Cash |
0.50% |
Source: Robeco
“There was panic in the markets over emerging markets and typically that has always been the time to buy.”
Besides trade war concerns and the China slowdown, the US dollar appreciated last year, which altogether drove down emerging market equity prices.
“At the moment, emerging markets have been trading at almost 30% discount to the rest of the large developed markets and almost 40% to the US,” Fedeli said.
In addition, she believes that concerns over the trade war should ease soon.
“What is happening now is we are in a midst of trade talks [between the US and China]. We do believe that there will be a positive solution from these talks. It won’t be perfect though, as there will still be a lot of unresolved areas in intellectual property and technology transfer.”
Fedeli also expects that the US dollar will not be as strong as last year, which should be good for emerging markets.
Within emerging markets, Fedeli prefers Asia over Latin America on the back of Asia’s rising middle class and “[better] intellectual property”.
Nearly 75% of Robeco’s Emerging Markets Equities Fund, which Fedeli co-manages, is in Asia-Pacific equities, with China having the largest country allocation at 31.7%.
Fedeli also noted that she likes Russia, which accounts for 5.8% of the portfolio.
“For Russia, its monetary policy has been incredibly orthodox and there has been a real improvement overall in the financial health of the country.
“However, the biggest risk there is a continuation of the sanctions due to geopolitical risks, and that is something that we have to keep in check.”
The Robeco Emerging Markets Equities Fund versus its benchmark index
