Baring Emerging Markets Fund makes short-term plays in Korea and technology
Thursday 18th February 2010
By Mike Jones
Paul Wimborne, manager of the Baring Emerging Markets Fund, believes outstanding investment opportunities currently lie in emerging market companies with global exposure in regions such as Korea, but is cautious on Brazil in the short-term.
The fund has made over a 5% increase, since September 2009, in its holding of Korea which brings the current allocation to 13.8% (as at 31 January 2010), the largest overweight holding there in three years. At the same time, it has reduced its holding in Brazil from 21.8% in September 2009 to 13.3%, as at 31 January 2010. It has increased its overweight positions in consumer durables and information technology.
Wimborne said: "While the fund continues to favour domestically-focused companies in economies with strong growth potential over the long-term, we have also identified strong tactical investment opportunities in globally exposed companies in countries such as Korea. There are a number of cyclical opportunities as the global recovery continues and both emerging and OECD companies look to restock inventories, such as in technology, energy and metals.
"Technology in particular holds enormous investment potential as we anticipate corporate computer replacement cycles kick-starting on a global basis. Historically, it is post-downturn when such items are upgraded and replaced. Ironically, it is now often the case that people have more advanced computers in their homes than in their workplaces. Whilst timing and selection of investing in cyclical companies can be tricky, we believe in this instance there are impressive returns on offer."
Barings believes Korea is one of the global engine rooms of technology and this, along with certain other exports, for example materials, showing strong earnings upgrades, mean Korea offers a compelling opportunity for investors currently. Korea is now the third largest country holding in the fund. Simultaneously, Wimborne has reduced the fund’s position in Brazil to its second largest underweight country position.
Wimborne said: "Over the short-term there is much to be cautious of in Brazil. First, in October we will see a new president elected as incumbent President Lula is unable to stand for a third term and the risk is that the transition will create market volatility.
"Second, we are also expecting to see a change in the president of the central bank. With new leadership comes a bedding-in period and potential policy mistakes that we are wary about. Finally, the third risk we see is the proposed injection of the state’s recently discovered offshore oil assets into Petrobras, via a huge rights issue. Petrobras is the largest stock in MSCI Brazil and a bellweather for the whole equity market. The longer-term continues to paint a different picture, with the market having a strong banking system, large domestic demand potential and a domestically focused economy. We therefore remain positive on Brazil over the long term."
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