Large energy exporters Brazil and Russia are the emerging markets poised to outperform as India and other Asian economies face headwinds, according to Credit Agricole Asset Management (CAAM).
As proposed tax breaks for Russian oil companies and the high oil price augur well for Russia, the deep-water Tupi oil field off the Brazillian coast could see the state oil company, Petrobras, reap big profits, Stephane Mauppin-Higashino, head of the product specialist team at CAAM for equity and balanced portfolios, said. These views have resulted in the manager building an overweight exposure to Brazil and Russia while reducing its allocations to China and India in its emerging markets fund. In May, Russian prime minister Vladmir Putin proposed that seven-year tax breaks be granted to companies involved in the exploration and development of new deposits. Mauppin-Higashino said that in the past decade, Brazil had progressed from being a net importer to net exporter of oil. However a slowdown in China could be harmful to the Brazillian commodity producers, Mauppin-Higashino said. He said that CAAM formed these positive views on oil producers by assuming that the price of oil would not drop below US$80 for each barrel. Aside from the focus on commodities in those markets, however, is the “emerging consumer,” Mauppin-Higashino said. Even though emerging market equities are far more exposed to commodities than consumer discretionary stocks, the production of local goods and brands, and the internal demand for these, should not go unrecognised. “The notion of domestic demand is far underrepresented.” To illustrate the point, Mauppin-Higashino pointed to data indicating that in 2007, roughly 13 per cent of urban Chinese earned more than US$3,000 each year, a sum that enabled them to save money and buy consumer goods. It is estimated that approximately 26 per cent of this population would earn in excess of $3,000 by 2015. Meanwhile, CAAM regarded India as an expensive market with a worrying current account deficit, while other Asian economies, particularly Malaysia, Taiwan and Thailand, were substantially exposed to US exports and seemed vulnerable to an American slowdown. The CAAM Emerging Makets Fund recently attracted two big mandates, collectively worth US$1 billion, from Middle Eastern investors, bringing its funds under management to US$4 billion.
There is one investment area where Insignia’s $180 billion super arm has not lost money for the past 17 years, which is what it calls the insurance-related investments. The alternatives strategy is gaining popularity among asset owners due to its diversification benefit, but Insignia’s super and asset management investment chief Dan Farmer warns it is a space where investors can suffer if they “stumble in without doing the homework”.
Darcy SongJanuary 23, 2025
