The past year has radically altered the outlook for investment markets. Hard currency inflation and the steady creep of deglobalisation have brought an end to free money. Companies formed on high concept growth strategies are having to restructure. Emerging and Asian markets, especially those with a positive earnings proposition, are once more attracting attention.
Stock markets in Asia - though inefficient - provide a plethora of opportunities for patient investors to own profitable, high growth businesses. We help our clients build a portfolio of companies that generate high return on capital employed, generate good cashflows, survive and thrive through business cycles and trade at reasonable valuations.
Zero interest rates and vast central bank asset-purchase programmes favoured super-long duration stocks, companies with the potential to scale global growth over those able to pay regular dividends. Returns were concentrated in the most sophisticated sectors in the most developed economies. As interest rates have risen and capital once again has a cost, will the pendulum swing back to the commodities and basic industries more typical of emerging markets?
Emerging markets can go right or wrong at the country level. No company can escape the economic and political environment in which it operates. We invest in emerging markets from an assertively top-down, country-driven basis by building a portfolio that looks to take advantage of macroeconomic and political opportunities within preferred emerging countries.
The dollar is the currency of global trade and its relative value has historically determined the performance of developed markets against emerging markets. That relationship is not yet broken but it appears to be changing. Higher interest rates, rising commodity values, the need for new infrastructure and geographic shifts in manufacturing are leading to new patterns in performance, favouring markets with strong financials, good location and physical exports.
We capture returns in emerging markets using our robust ‘Dual-Philosophy’ approach. Our flexible approach to growth allows clients to embrace classic secular growth stocks and recovery growth opportunities. This combination contributes to the strength of our approach and underpins our long-term performance record.
Strained geopolitical relationships and over-extended supply lines are leading to a trend of relocating critical plants to nearer and friendlier shores. Mexico seems to be among the largest beneficiaries and researchers estimate that the opportunity could contribute to a significant lift in economic growth, driven primarily by a strong rise in exports.
