Emerging markets turnaround underway: Young

Aberdeen’s star manager Hugh Young has hailed a turnaround in sentiment in Asia and emerging markets as investors dip their toes back into the region following years of underperformance.

Mr Young, the highly successful managing director of Aberdeen Asset Management in Asia, said the markets seemed to be “making up for lost ground”, having sold off heavily last year.

On an industry-wide level, emerging market funds have now seen five consecutive weeks of net new money flowing in, a sharp contrast to the 22 consecutive weeks of outflows seen previously.

Mr Young said emerging stockmarkets “appear to be turning a corner”, though he cautioned that no-one can predict with any certainty whether it will remain in favour.

The upturn in sentiment has also coincided with an improvement in the Aberdeen Asian and emerging market funds’ relative performance, which has been lagging peers in the past year.

Mr Young said he and the rest of Aberdeen’s Asian and emerging markets team had refused to make changes to their funds through their recent underperformance, adding sentiment was now beginning to return to their favoured countries and sectors.

“Last year currency weakness in markets where we have long-standing overweight positions, including Thailand, India and Indonesia, had a significant impact,” he said.

“In contrast, countries such as China, Korea and Taiwan, where we are underweight because of a lack of quality companies, held up better amid the volatility.

“Our overweight to interest rate-sensitive sectors, such as financials and consumer discretionary, also hurt relative performance as some countries tightened monetary policy to support their currencies.”

Mr Young said he and the rest of the team had “held our nerve” during the underperformance, and topped up their preferred stocks at cheaper levels and those companies had recently “bounced back”.

The manager pointed to improved sentiment in Indonesia in the run-up to the election in that country, which had led to a significant gain in Jardine Strategic’s share price – which is a top 10 position in his £2.2bn Aberdeen Asia Pacific fund.

Both Indonesia and India have rallied this year, both in terms of the stockmarket and the currency, which Mr Young said was down to their efforts to fix the domestic imbalances – which had led to both countries being included in the list of ‘fragile five’ emerging markets most at risk from US monetary tightening.

Mr Young conceded the rebalancing within the whole of Asia and emerging markets could still take much longer, which has led to some headwinds such as slowing exports and weak internal demand.

But he reiterated the attraction of the region’s rising wealth and favourable demographics, and said that “companies able and willing to exercise caution now should reap the benefits further down the road.”

Mr Young said the Aberdeen team continued to focus its asset allocation towards South-East Asia because it still likes the “broad consumption story which is underpinned by low debt, credit expansion and rising wealth” in the region.