In recent months, we have been allocating capital towards markets and sectors that have underperformed.
For instance, we believe that Brazil now looks attractive. The country has some excellent businesses, with management teams that understand the importance of good capital discipline. We recently established a position in Banco Bradesco, one of Brazil’s largest private sector banks.
Our process is focused on three main points. Firstly, finding well-managed companies which understand the importance of creating value; secondly, valuations, and finally corporate governance. From a governance and management standpoint, we favour markets such as South Africa, Brazil, Mexico and India. But if you include valuations in the equation, Brazil becomes one of our most favoured markets right now.
From a sector basis, we are most excited about the more cyclical areas of the market, where valuations are offering us some interesting opportunities.
Brazil has been weak reflecting investor concerns on the slowing economy and also government interference in the two largest Brazilian companies, Vale and Petrobras.
We do not make macro or market predictions so are loathe to predict when the market might turn but what we can comfortably say is that there are some fantastic companies in Brazil that are currently trading on very depressed valuations.
Matthew Vaight is manager of the M&G Global Emerging Markets fund
