Domestic growth fuels emerging market funds: Axa’s Thompson
Export-driven countries exposed to slowing consumption in Europe, while Latin America looks strong
Growth in emerging markets countries is shifting to domestic consumption and away from export markets that often offer volatile levels of demand, a fund manager has said.
Julian Thompson, manager of the Axa Framlington Emerging Markets and the Axa WF Framlington LatAm fund, said Brazil has become an attractive place to generate returns because its reliance upon commodity exports is low. “I don’t worry about Brazil because it’s diversified and exports are only a small part of its GDP,” he said.
However, he said Korea and Taiwan, on the other hand, are less attractive investment markets for because exports account for 36% and 56% of GPD, respectively. In Brazil, total exports are just 7.3% of GDP.
About 70% of Thompson’s fund is invested in firms that have a domestic focus, he said, because this is where reliable growth in emerging markets is most likely to come from.
Export-dependent countries like Taiwan, however, are exposed to slowing consumption rates in Europe and could suffer as a result. “We’ve seen a steady, slow decline in exports,” he said.
While global growth is on the wane, Thompson said he believes credit demand is where countries will find growth. “What we will see is a pickup in credit demand. There are historically low interest rates in Brazil,” he said.
Thompson eyes Brazil and Mexico as two hot markets for investment growth, but he also sees Korea’s Samsung Electronics as a strong holding even though the firm recently lost a major court battle to Apple Inc in the US and was told to pay $1bn in damages.
Samsung is Thompson’s largest single holding in the fund at 4.8%. He said the amount the firm’s market capitalisation lost in one day after the ruling, to the tune of $11bn, was excessive compared to the fine and added that the judgement applied only to older phone models, rather than the latest handset releases.
He said he did not take any action when the firm’s share price began to slide.
Conversely, Thompson said his fund has no exposure to HTC, the Taiwan-based mobile phone manufacturer. The firm has seen its share price fall by 68% in the past year, while Samsung’s increased by 55%.
“They’re a dying business,” Thompson said of HTC. “They just aren’t able to compete.” He added that Samsung has been able to reinvent itself and sell smart phones at a lower price point than HTC, which has not responded with a cheaper product.