This year could be the time to invest in emerging markets if two key scenarios play out, Neptune Investment Management’s James Dowey has said.
Speaking to FTAdviser, Neptune Investment Management’s chief economist explained emerging markets’ performance in 2018 was a "shocker" – with emerging markets falling about 20 per cent – but 2019 could prove better, depending on whether or not two key scenarios play out.
Mr Dowey explained: "The first would be some stabilisation of the Chinese economy, which has been decelerating throughout the past year.
"We've seen quite a lot of stimulus from the Chinese government over the past nine months or so, and that should start to feed into some stabilisation in the second quarter, but it's not a given by any means."
Second, he said, would be the weakening of the US dollar because "a strong US dollar weakens [emerging market] balance sheets – they tend to hold US dollar denominated liabilities, it's not matched on the assets side and it makes things difficult for them when the dollar goes up".
Separately, he noted the impact of digital disruption on UK equity income this year should not be overlooked by investors and fund managers, who needed to "invest in the future when they invest in companies".
He also warned that a classic income stock, such as tobacco, was no longer going to provide a secure income stream.
He continued: "What you need to do in terms of sourcing income for your clients, or as an investor, is balancing stocks with a decent dividend yield, with stocks – which may be paying less out – but [that] are re-investing their profits in a business model that works for the 21st Century.
"For the ordinary client, who perhaps had a large share of their wealth invested in the company they worked in and then saw those stocks plummet during the 2008 to 2009 crisis, they realised very vividly at that point that things can change, and these companies that seem ‘safe’ and seem as though they have been there forever – that can change."
He added: "In general, fund managers have been quite slow to catch onto this dynamic."
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victoria.ticha@ft.com
