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AXA Rosenberg Investment Management is launching
an Australiandomiciled wholesale trust to accommodate what it believes will be
a surge in demand for active emerging markets allocations. As the de-coupled
theory that emerging markets would avoid the global downturn turned out to be unfounded
in the past year, the number of companies trading at below their book value has
risen to record levels, according to Bill Ricks, the chief investment officer
for AXA Rosenberg in the Americas.
He said on a visit to Australia
in April that emerging markets were on average in a better position for strong growth
over the medium term than the developed markets. The quant manager’s emerging markets
strategy, launched in 2006, is country neutral and mirrors the firm’s process
for active equities management in developed markets based on future earnings
The firm has about $1 billion in the strategy. Kathryn McDonald, the
new head of investments for AXA Rosenberg in Australia, said many stocks across emerging
markets were trading further away from their fair value, opening the door for
investors to profit from the spread.
“During periods of book to- price
compression, such as 2004 – 2007, we saw many companies trading at very similar
valuations, however, we are now seeing an expansion of spreads across many
valuation measures, such as book-to-price,” she said. “It follows that active
managers who have true valuation insights stand to gain more as prices converge
towards fair value.” Research based on emerging markets stocks between
2001-2008 shows that the top 20 per cent of companies based on realised
one-year future earnings per dollar of initial cost outperformed the
corresponding market average by 30 per cent.
McDonald said: “Emerging markets equities
with a higher earnings yield tend to outperform those with a lower yield.
Although gathering and analysing corporate financial data in emerging markets
remain challenging, we believe there is enough quality data across a great many
companies to make individual security analysis a fruitful endeavour.”
Ricks said that the responsiveness of emerging markets to information was on a
par with that of developed markets. “As long as there is a strong connection between
a company’s ability to generate profits and the stock price, then the world has
not changed. That relationship in emerging markets is as strong or stronger
than in the developed world,” he said.