Aberdeen Standard Investments; why we’re optimistic about Emerging Markets

Investors appear to be returning to riskier assets, as seen in the rotation from growth stocks into more cyclical ones at the end of 2020. The asset class remains attractive due to its diverse range of high-quality companies, and structural growth drivers, including healthy demographics and a growing middle class, combined with an increasing number of global leaders, particularly in the technology space.

For example, In Latam we are seeing flows returning to the region gradually and capital market activity is intense. At the time of writing we have over 40 companies lined-up to list its shares in the Brazilian stock-exchange across several sectors.

Latin America is well positioned to benefit from a conducive external backdrop thanks to its inherent exposure to global trade and commodities for most economies. Domestically the region is faced by challenges, however, with definition around congress and senate head out of the way in Brazil, we see a window of opportunity for that agenda to resume. Despite the challenges at the corporate level we remain confident on the earnings recovery as one of the main pillars for investing in Latam and would expect the 4Q earnings season to corroborate that view.

Why do we believe in Latam?

  1. Latam poised for a rebound – While domestic political noise remains, corporate earnings are recovering on a steady foot, valuations are undemanding and any improvement on external scenario could lead to a rebound for the region
  2. Covid-19 hit hard but also a catalyst for change – companies were severely hit but many use this a trigger for change with efficiency and digitalization initiatives putting them in a stronger position as economies reopen
  3. Improving sentiment – Latam is inherently well positioned to benefit from a scenario of improved sentiment towards global trade due to the importance of commodity sector for the underlying economies. ie continue to find interesting ideas within e-commerce and digitalisation trends which are not represented in the index. 40 companies lined-up for IPO in Brazil.
  4. Long term thesis intact – young, growing populations with increasing wealth and underpenetrated sectors translates to an enormous opportunity to find quality companies to tap into long-term growth potential

Vaccine developments and conclusions around US elections helped to lift sentiment towards the region pushing Latin America to outperform broader EM markets and return to the radar of analysts’ recommendations and foreign investors – Brazil has been experiencing record inflows reverting the trend observed in the past months. The fact Latin American economies and assets has been one of the most severely impacted by the Covid crisis positioned it favorably for a relief rally. The improving outlook for global trade and commodities also bodes well for the region given the relevance of the commodity sectors for most economies. Domestically, we are seeing sequential improvement in economic activity which is translating into corporate earnings while valuations and positioning remain supportive with the region set to benefit from continuity of flows. Key areas to monitor though remain the management of the contagion including the actual implementation of vaccines in the different countries where logistic challenges could lead to delays. The phase-out of stimulus also remains a key topic as most countries in the region are faced with limited room for extension of fiscal measures – in that sense the discussion around the reform agenda in Brazil will be back to the spotlight now that municipal elections are concluded as this agenda remains a requirement to ensure a sustained recovery.


Featured News

This Week’s Most Read

  • Price of scarcity: Central banks are driving large valuation premiums on assets with limited supply

    By Charles-Henry Monchau, CIO at Syz Bank It is important to understand the concept of scarcity to better understand its mechanics and its impact on markets. Scarcity refers to the

  • Why now is the right time to invest in Japan

    By Masakazu Takeda, lead portfolio manager of the Japan Focus All Cap strategy at SPARX Asset Management The issues that have plagued Japan over the years are now at the doorstep of

  • Why high yield bonds could be the next ESG frontier

    By Lila Fekih & Mark Remington, Co-Portfolio Managers of the New Capital Sustainable World High-Yield Bond Fund at EFG Asset Management  Equities have garnered the most attention in the ESG

  • Fundsmith hints at bumpy ride

    Terry Smith’s annual letter to shareholders reports a slight underperformance of the MSCI World Index over one year Despite the value rally, quality stocks outperformed in 2021 Smith says unexpectedly

  • Brooks Macdonald Funds under Management hit £17.3bn

    Brooks Macdonald today publishes an update on its Funds under Management (“FUM”) for its second quarter ended 31 December 2021, together with a Trading Update for the half year. FUM

  • Ninety One appoints Juliana Hansveden

    Hansveden to develop emerging markets sustainable equity capability Ninety One has today announced the appointment of Juliana Hansveden, CFA, as Portfolio Manager, Emerging Markets Sustainable Equity. In this newly created

  • Man GLG’s Atherton: Governance revolution in Japan like the UK in the 80s and 90s

    The ESG-driven corporate governance revolution in Japan is creating investment opportunities similar to those in the UK in the 1980s and 1990s, says Jeff Atherton, manager of the Man GLG

  • US December CPI inflation rises 7% from a year ago

    David Goebel, Investment Strategist at Tilney Smith & Williamson, the wealth management and professional services group, comments on the latest US CPI inflation data: US December headline CPI inflation rose

  • BlackRock launches two new active Climate Action funds

    The BGF Climate Action Multi-Asset Fund and the BGF Climate Action Equity Fund leverage BlackRock’s deep expertise in active sustainable investing with the objective of generating positive environmental impact.  As

Wealth DFM