Expert: Kiran Nandra, Head of Emerging Markets Equities Management, Pictet Asset Management. Facilitator: Brod Whiting, Director, JoyndUp Ltd
This was an interesting topic with a very well-informed expert in terms of Kiran and a knowledgeable group of attendees. Kiran from Pictet started with a couple of introductory slides thereafter there was a roundtable interaction. Points and challenges were raised by the attendees and pleasingly everyone in attendance took part without being picked on by the facilitator. A great example of a roundtable.
It was inevitable that China kept cropping up throughout the round table. Pictet provided an in depth view into the state of Chinese real estate, China emerging markets is a key element of Emerging Markets, volatility this year has come from China. China scored a bit of an own goal with an aging demographic due to previous controls on the populations birth rate. Education is too expensive. The Chinese Government clamped down on Alibaba and Tencent as they were worried by their power and the data they have. There was also concern that children were spending too much time on these sites. Ten years ago, China didn’t know or care about investment from outside. Opening up the markets, meant being more westernised and then the Chinese Government stepped in. Is China an emerging market anymore? It did represent 10% growth but now more like 5%.
India is incredibly diversified, the more diversified the economy the less volatile the GDP is. Should you carve out China from your emerging markets portfolio? If you do take out China then that leads to greater exposure to Taiwan and South Korea, both of which have a higher degree of non-financial risk. With Emerging Markets their very nature means clients must be prepared to accept the higher degree of risk. The advisers say clients are excited by the opportunities offered by Emerging Markets, you do get very ‘punty’ clients. Emerging markets represent excitement through the higher degree of risk but a greater opportunity for returns and it adds ‘spice’ to a client’s portfolio.
The challenges open to interpretation
What is an Emerging Market? The likes of South Korea and Taiwan, can they really be classified as Emerging Markets, they seem like very well-developed markets?
If China does represent a large percentage of the Emerging Markets sector, while it was at 10/12% growth if it is now 5-6% that will have an impact on the overall performance of the Emerging Market? should China continue to be held in such a large percentage? The expert tells us when it comes to investing in China you must look at the areas that the Government wants to encourage. Passive investment in China is probably no longer an option because of the need to focus on certain areas, it requires active management.
ESG and emerging markets – is it possible to invest in emerging markets whilst staying true to an ESG philosophy? Would western investors ever accept China or Russia in an ESG portfolio largely due to human rights issues? Are ESG issues likely to be even considered by those clients looking to invest in Emerging Markets? Is it all about returns and the ‘spice’ rather than the detail of where clients’ money is actually invested? When it comes to ESG investing should fund managers only invest in companies that tick all the ESG boxes now or should they use their influence by investing in companies to drive better ESG outcomes by setting clear targets and expectations?
Emerging Markets are all about change and therefore needs constant monitoring. The sector is by its very nature more volatile. The feeling was that If China is no longer showing the high returns and being seen as a political ‘bad boy’, India should now really start to come to the fore due to its huge potential.
Frontier countries - Vietnam is likely to move from Frontier into the Emerging Markets but it still has work to do. It is being held up as it caps how much foreign investors can own. Other countries Pictet are looking at in this space are Nigeria and Kazakhstan. Brazil still has its political issues as does South Africa leading to extra caution when considering investing in these regions.