Multi-managers are beginning to set their sights on emerging markets after a torrid year for the asset class, but are awaiting a major ‘buy’ signal before piling in.
Emerging markets equities and bonds have sold off heavily in the past six months, with the MSCI Emerging Markets index falling 7.8 per cent and the average fund in the newly created IMA Global Emerging Markets Bond sector falling 9.5 per cent, according to FE Analytics.
But in spite of these figures and a steadfastly negative sentiment from asset allocators according to recent surveys, multi-managers at Henderson, F&C Asset Management and City Financial are eyeing up a return to emerging markets after cutting back exposure early in 2013.
Mark Harris, manager of City Financial’s multi-asset funds, said his quantitative models were flagging emerging market equities as potentially offering cheap access following months of falling prices and currency woes. But he said he was still waiting for “extreme” data points to indicate a good time to buy.
“People have been redeeming from emerging market debt and equity funds, but we’d like to see a big outflow figure or a big negative story somewhere like the FT for example,” Mr Harris said.
“We’re building up to that, but the flows aren’t extreme enough yet – when it hits some sort of crescendo we will start to buy. Within the next couple of months it could be a time to dig around.”
F&C’s multi-managers Gary Potter and Rob Burdett held only a small allocation to emerging markets last year but said they had started to move back into Asian equities “at the margin”.
Mr Potter said: “There’s an awful lot of froth around small cap [emerging markets] and negative sentiment, but there may be a degree of mean reversion this year.”
Meanwhile, Henderson co-head of multi-asset Bill McQuaker said emerging market debt was high on the radar in spite of recent heavy losses.
“Emerging markets is an area we have to appreciate is getting more interesting,” he said.
“Even with the argument that the value is just in the banks and resources stocks, as a medium term investment it is starting to look interesting. Sentiment indicates people are very anti-emerging markets which is quite encouraging.
“We are looking at emerging market debt to see if there is a chance to re-engage and we will do the same with equity.”
Retail investors put a net £1.7bn of new money to work in the IMA’s four dedicated emerging market equity sectors in 2013 to the end of November, according to the fund management trade body’s monthly data. This was ahead of the 2012 figure for the same period, which saw net retail inflows of £1.5bn across the IMA Asia ex Japan, Asia inc Japan, Global Emerging Markets and China/Greater China sectors.
