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Asia & Emerging Markets

Asia & Emerging Markets sector

The Asian and emerging markets cover a broad range of countries at varying stages of economic development.

Kate Marshall - Senior Investment Analyst
16 July 2019

Asian and emerging market investing can give you access to a broad range of countries. From Asia to Eastern Europe, South Africa to Latin America, they offer a range of countries at different stages of economic development. Some are rich in commodities and natural resources, some rely on exporting goods to Western economies, and others have vibrant consumer-driven growth.

These markets have grown rapidly in recent decades. As young, emerging economies, they tend to offer greater growth opportunities than the West. This comes with higher investment risk and more volatility though.

Funds investing in the region have different areas of focus:

  • Emerging markets funds – offer broad exposure to global emerging economies, from Brazil to Malaysia and India to Turkey
  • Asia ex Japan funds – invest exclusively in Asian markets, such as China and the Philippines. Some focus on more mature economies, including Hong Kong, Singapore and Australia
  • Regional funds – others focus on a specific region or country such as Latin America, including Brazil and Chile, or Eastern Europe, which includes Russia

HL View

Asian and emerging markets have gone from strength to strength. Rapid industrialisation, growing populations, and a desire to succeed have helped transform developing countries into economic superpowers. Domestic consumption is set to be a key driver of growth over the coming years, helped by a young and growing population, and rising wealth.

These countries have also become hotbeds of innovation. Some countries are at the forefront of technology and many companies located there are overtaking Western competitors.

Our analysis suggests there’s a reasonable amount of value on offer in these markets at the moment. So it’s possible to buy shares at a good price compared with their future growth prospects. This relies on companies to continue to grow their earnings though.

Asian and emerging countries are quite different from each other, so this part of the world can be home to both the best and worst-performing global stock markets at any one time. That’s why we think a diversified approach is sensible when it comes to investing in these markets.

If you’re looking to invest in these markets for the first time we think a broad global emerging markets or Asian fund is likely to be a good starting point. Other funds could then be added to a portfolio for additional exposure to a particular theme, area, or country.

The HL Multi-Manager Asia and Emerging Markets Fund is available for investors who’d prefer experienced investors to pick the funds on their behalf. It has a core of funds that invest more broadly across the region. The managers then add funds focused on a more specific area if they find an exciting investment opportunity.

This extra layer of management means there are additional charges associated with holding a multi-manager fund. The fund is managed by our sister company, HL Fund Managers. It invests in companies of all sizes, including higher-risk smaller companies.

Investment notes

Please remember past performance is not a guide to future returns. Where no data is shown, figures are not available. This information is provided to help you choose your own investments, remember they can fall as well as rise in value so you may not get back the original amount invested.

Our favourite funds in this sector

First-class performance potential and low management charges

View the Wealth 50

It's been another volatile year for Asian and emerging stock markets.

Like most global markets, they fell towards the end of 2018. Concerns over a US-China trade war didn't help and this has put pressure on share prices at times.

Investors sighed some relief at the end of the year after the US Federal Reserve suggested it would raise interest rates slower than expected. This is seen as a good thing for emerging markets companies because it keeps the cost of their borrowings in US dollars lower for longer.

It's helped markets rise again so far in 2019 and means they've made a positive return for the year as a whole to the end of June 2019. The broader emerging stock market grew 9.8%*, while the Asian market grew 5.7%. China wasn't so lucky though and its stock market lost money over the year.

Asia and emerging stock markets - one year performance

Past performance is not a guide to future returns. Source: *Lipper IM, correct as at 30/06/2019.

US President Donald Trump's trade policies still have the potential to cause further market volatility. But it's worth remembering China’s more focused on domestic consumption than export-driven growth than it used to be. So the trade tariffs might not have as big an impact on growth as some people think.

China’s massive debts could be more of a concern. It needs to curb its debt surge and let growth slow to a more sustainable level. Otherwise it risks a crisis. It’s impossible to call when or if this might come to a head, but it’s worth bearing in mind the risks when it comes to investing in these markets.

Over the longer term these markets have performed exceptionally well and we’re excited about the long-term opportunities that lie ahead. Domestic consumption is expected to grow over the coming years and should be one of the main contributors to the region’s development. Ecommerce and technology is likely to play a big part in this. It means companies can sell their products and services to a wider pool of people and this creates huge opportunities.

Performance will be volatile at times though and investors must be willing to ride out the uncertainties along the way.

Annual percentage growth
Jun 14 -
Jun 15
Jun 15 -
Jun 16
Jun 16 -
Jun 17
Jun 17 -
Jun 18
Jun 18 -
Jun 19
FTSE Asia Pacific ex Japan 8.6% 6.8% 27.7% 7.0% 5.1%
FTSE Emerging 6.7% 3.7% 24.1% 5.9% 8.3%

Past performance is not a guide to the future.Source: Lipper IM to 30/06/2019.

Investment notes

Please remember past performance is not a guide to future returns. Where no data is shown, figures are not available. This information is provided to help you choose your own investments, remember they can fall as well as rise in value so you may not get back the original amount invested.

Five year performance

  • FTSE AW Asia Pacific ex Japan

    +66.4%

  • FTSE Emerging

    +57.5%

Data correct as at 30/06/2019. Please remember past performance is not a guide to future returns.

Our favourite funds in the sector

We regularly review all the main investment sectors. Here we provide comments on a selection of funds in the Asia and emerging markets sectors. They're provided for your interest but are not a guide to how you should invest. If you're unsure if an investment suits your circumstances seek personal advice. Comments are correct as at July 2019.

These funds invest in emerging markets, which are higher risk than developed markets. For more information, please refer to the Key Investor Information for the specific fund. Remember all investments can fall as well as rise in value so you could get back less than you invest. Past performance is not a guide to the future.

To view a full list of our favourite funds within the sector, visit the Wealth 50. There is a tiered charge to hold funds with HL. It is a maximum of 0.45% p.a. - view our charges.

Other funds in this sector

Here we look at some other funds of interest following our most recent sector review. Please note the review period may be over a short time period and past performance is not a guide to future returns.

To view a full list of our favourite funds within the sector, visit the Wealth 50.

Source for performance figures: Financial Express

This fund offers a way to access Asia's exciting growth potential, along with a regular income. It focuses on larger, dividend-paying companies, mainly in developed Asian markets like Hong Kong and Singapore.

Jason Pidcock, the fund's manager, uses a conservative investment approach to investing in Asia. He looks for companies that make lots of cash, have low levels of debt and are in good financial health. It's an approach that's worked well over the past year, as well as over the longer term, and the fund's performed better than the broader Asian stock market. Pidcock continues to invest a large part of the fund in Australia, at around a quarter of the fund. He invests in a number of financials companies like Macquarie Group and Suncorp Group, as well as Star Entertainment Group, which provides entertainment and hospitality services so it could benefit from any rise in tourism. The manager invests in a small number of companies, which means each one can have a big impact on performance, but this increases risk.

Please note charges can be taken from capital which can increase the yield but reduces the potential for capital growth.

This fund is run by a team with a great pedigree of investing in Asia. It invests broadly across Asia, mainly in larger companies, along with a selection of medium-sized companies with superior growth prospects.

Martin Lau has used the same disciplined investment approach over many years, with 'quality' at its heart. He looks for businesses run by a quality management team, which sells quality products or services that makes them difficult to compete with. It's helped the fund hold up well during tougher times, which we saw last year when the broader Asian stock market fell. The market's rebounded so far this year, and again the fund's performed well, although past performance is not a guide to the future. Around 20% of the fund is still invested in India, where the manager has found a number of quality companies. He also expects to invest more in China over time. China's markets are gradually becoming more accessible to overseas investors, which could provide new and exciting investment opportunities.

This fund invests in smaller businesses based in Asian and emerging markets, or that make most of their money there. These innovative businesses offer lots of growth potential, but are higher risk.

We expect smaller companies to perform better than larger ones over the long run. This won't be the case every year though, which is what's happened over the past year. The fund doesn’t invest in many bigger businesses, so it's missed out on some of the gains. Longer-term performance has been good though. Matthew Dobbs, the fund's manager, thinks one of the biggest trends in Asian and emerging markets over the coming years will be the rise in consumption. Rising wages means people could spend more on things like consumer goods, healthcare and financial services, so he's focused the fund on these areas.

This fund aims to track the performance of the FTSE Emerging Index – a broad index of more than 1,000 large and medium-sized emerging markets companies.

This is our favoured choice for a low-cost, passive alternative to investing in the emerging markets. It invests broadly across many countries in the region, including Taiwan, India, Russia, and Brazil. It invests in every stock in its benchmark index, which provides plenty of diversification and means it should track the market as accurately as possible.

The team behind this fund focus on larger, high-quality Asian companies with healthy finances and robust cash flows, run by responsible management teams.

The team's more conservative investment approach helped the fund hold up well last year when the broader Asian stock market went through a tough patch. The fund doesn't tend to go up as much when markets rise quickly though, which we've seen so far this year. Recently the team has increased the fund's exposure to Japanese companies that earn money from across Asia, not only in Japan. They have the type of culture and high governance standards the team looks for. We think the fund has great long-term potential, though it's not currently on the Wealth 50. We think there are other Asian funds with excellent potential, which are available at lower cost.

This fund aims to pay a regular income. At the same time it provides exposure to the growth potential of countries across Asia.

Zoe Kan and her team focus on companies that have tended to grow their earnings at a steady rate, which could help support dividends, rather than those that deliver high rates of growth in fits and starts. The resilience of these companies during tougher times helped the fund's performance over the past year. We think the fund has the potential to deliver good long-term returns, but it's not on the Wealth 50 list of our favourite funds. We currently have more conviction in other Asian funds that use a similar approach.

Please note charges can be taken from capital which can increase the yield but reduces the potential for capital growth.

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Investment notes

Please note the research updates are not personal recommendations to trade. If you are unsure of the suitability of an investment for your circumstances please seek advice. Remember all investments can fall as well as rise in value so investors could get back less than they invest.

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