Just a few hours before my relocation to São Paulo, I wanted to share some views on the Emerging Markets turmoil of the past weeks.
In the midst of the volatility of the Emerging Markets, some interesting articles were shared and discussed between the Buysse & Partners team. Despite the turmoil around these markets, we remain confident that in the long term, their value will shine through.
In an article published in December 2013 edition of ‘Fortune’, Justin Leverenz – who manages the USD 37 billion Oppenheimer Developing Markets Fund – explains why investors should not view Emerging Markets as vulnerable to rises in US interest rates or other decisions taken by the Federal Reserve. “These things matter to traders, not investors. There’s a view that emerging markets need outside capital to overcome decades of underinvestment and that capital is available only when global liquidity is good. But this dynamic is no longer as relevant because, by and large, the emerging world is the creditor in the system, not the debtor.” As investors, we look at the long term and leave the speculation to traders.
In ‘De Tijd’ of Saturday February 8th, Frank Vranken – Puilaetco Dewaay’s head of strategy – wrote an article on ‘the fragile five’: India, Turkey, Indonasia, South Africa and Brazil. While bearish news could be read around all five of them, only one of them deserves a place in your portfolio: Brazil! Brazil has sufficient reserves to cover both the deficit on the current account and its foreign debt for the coming two years. In terms of compensation for the currency risk too, Brazil easily beats the others. As compared to a Belgian 3-year government bond, similar investments on Brazilian government bonds earn a higher yield of 10%. This means that the real vs the euro may depreciate with about 30% over the coming 3 years, before its higher yield is completely absorbed by the currency’s depreciation.
It should be clear that the emerging world is heterogeneous. Brazil is not China, and China is not Columbia; each one of them behaves differently and responds in their own way to events in the rest of the world. Our strategy with the Latin American Growth Fund to invest not only in Brazil, but also in the Andean Axe (Chile, Columbia & Peru), respects the nature of the emerging countries and offers peace of mind when new ‘uproar’ hits one of them.
Although Emerging Markets will remain volatile in the short term, we remain most confident for the long term. After the corrections of the last weeks, the economies of the affected countries will need to find a new balance. They will need to rely less on excessive foreign capital-flows and more on structural reforms. Emerging Markets investing is about patience, it takes time for their value to shine through, but… the momentum is now.
I will now start packing my bags and celebrate Valentine with my beloved. As from next week, you may expect live reports from on the ground!
Matthias Verheecke
