Looking for growth : an opportunity for stock picking




Emerging markets GDP has been decelerating since 2010. Growth of 3.5% could be expected for 2015, which would represent the fifth consecutive year of economic slowdown.







Emerging markets under pressure

Today, emerging markets are under-rated and under-owned. The current EPS ratio, of 12 times the expected profits over the next 12 months, is below the historic average (see chart 1). It also represents a discount of 30% compared to international equities.


Chart 1: MSCI EM 12 Months Forward PE Ratio relative to MSCI World Index


Sources: Thomson Reuters, MSCI, Natixis Asset Management Asia Limited, end of May 2015

Growth of investment into most emerging markets has slowed down, with almost USD 50 billion currently remaining neutral or underweight.
Furthermore, in the current context of disappointing performances and declining average inflation observed over the past few years, emerging central banks have entered a cycle of monetary policy easing. Twenty or so rate cuts have been applied since the beginning of the year across most emerging markets.

What are the consequences for investors going forward?

Investors can expect a return of 5-10% from emerging markets, which is in line with earnings growth. We believe that the depreciation in exchange rates and wage moderation (given the inflation rate) will enable emerging companies to improve their operating margins, after seven years of deterioration. Gains in productivity could reverse the trend over the next twelve months.
Finally, the average correlation between emerging stocks has never been so low (see chart 2).

Chart 2: Average correlation against MSCI EM Index


Sources: Bloomberg, MSCI, Natixis Asset Management Asia Limited, end of May 2015


The benefits of stock picking have never been so high. With a relatively neutral beta and a low degree of correlation, emerging equities are a real stock picking market opportunity once again.

Read Emerging Markets Views - June 2015



Fresh opportunities on the emerging markets

Emerise is Natixis Asset Management’s investment division dedicated to emerging markets. To mark the first year since its creation, Head of Emerise Stéphane Mauppin-Higashino gives an update on the outlook on these markets.

Read More


Outlook 2nd semester 2015 on emerging markets

Stéphane Mauppin-Higashino shares his macroeconomic analysis of emerging markets for the second half of 2015 / beginning of 2016.

Read More

See all news