Emerging markets may offer the best protection against volatile stock markets, according to a fund manager.
David Jane, who runs £839m across four multi asset funds at Miton, said uncertain market conditions could lead to central banks delaying interest rate rises and the end of quantitative easing, which would boost emerging market returns.
Mr Jane said much of the volatility that had gripped markets in recent months was a consequence of investors fearing that the end of the policy of quantitative easing would lead to a prolonged downturn in markets.
This is based on the view that stock markets have performed much better than underlying economies in the years since the financial crisis because the injections of capital pumped into the market have been used to buy assets, pushing those asset prices higher.
But Mr Jane said asset prices might simply revert to traditional valuation levels, rather than collapse, as some fear.
However, he added companies that have high levels of debt were likely to struggle in an environment of higher interest rates and less liquidity, which would damage the returns from higher yielding bonds.
This is why he has abandoned higher risk corporate bonds to buy government bonds.
Mr Jane said he was concerned negative headlines from the stock market could influence the real economy and lead to a downturn.
He said this could push policy makers to delay putting interest rates up.
But according to Mr Jane this could mean that emerging markets would perform well, as a slower path of interest rate rises would lead to lower borrowing costs for emerging economies, and so improve returns for investors.
James Bateman, chief investment officer for multi-asset at Fidelity International, said his "key" move of late was to buy more emerging market equities.
This because the weaker dollar and the lower oil price meant returns from those markets could improve.
David Scott, an adviser at Andrews Gwynne in Leeds, said he was keen on emerging markets for the very long-term, but in the short-term the impact of China’s economic slowdown meant he was avoiding emerging markets.
He said: "The fallout from Chinese growth slowing is something that is relevant to other emerging markets, we don't know what that will lead to yet, but we are avoiding emerging markets for now. We think long-term they are good value though."
david.thorpe@ft.com
