Newton’s Pidcock: Hot money has already pulled out

Emerging markets stocks should not be as badly affected by the eventual tapering of quantitative easing following this year’s sell-off, according to Newton’s Jason Pidcock.

Mr Pidcock, manager of the £4.4bn Newton Asian Income fund and the £253m Newton Emerging Income fund, said “hot money” had exited the sector following the US Federal Reserve’s announcement of a planned tapering of its money printing programme.

The announcement in May prompted a sell-off in emerging markets, with highly valued income-paying companies being particularly badly hit. Between May 22 and the end of August the FTSE All-World Emerging index - the Newton Emerging Income fund’s benchmark - fell more than 15 per cent.

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“I don’t think the tapering of QE will have the same shock factor next time,” Mr Pidcock said. “Everybody knows it will happen, it’s just a question of when. It doesn’t make a lot of difference.

“More important is when the interest rate goes up and I think that is a long way off - monetary policy will be loose for a long time.”

He added that the Federal Reserve was likely to “swiftly loosen” policy if it sees signs of a downturn.

“The yield on the fund gives us quite a good cushion,” Mr Pidcock said. “We would expect dividend growth to be faster if rates increase.”

The Newton Asian Income fund was the best performing product in the IMA Asia Pacific ex Japan sector in the three years to November 19, according to FE Analytics. The fund was also in the top five over five years.

Meanwhile the Newton Emerging Income fund, launched in October 2012, posted a second-quartile return of 4.3 per cent since launch to November 19.