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Our monthly research roundup – seeing opportunity in times of crisis

Kate Marshall, Senior Investment Analyst, looks at what our investment team got up to in August.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The Chinese word for 'crisis' is widely thought to combine the characters for opportunity and danger.

While this is probably nothing more than urban legend, it's a reminder of the adage "in crisis lies opportunity". And it seems particularly pertinent in today's world.

In China, a trade battle with the US, and civil unrest in Hong Kong, might signal danger to investors. However, if this is simply a short-term blip, the uncertainty could instead spell potential opportunity.

So far this year emerging stock markets have made money, and UK investors have benefitted further because of sterling's weakness against most overseas currencies. Emerging markets rose 11.4% to the end of August in sterling terms. Past performance shouldn't be seen as a guide to future returns though and these markets have been volatile recently, so investors might consider whether this is the time to dip a toe in the water.

US-China trade war won’t hinder great companies

We recently met a few of our favourite teams for investing in Asian and emerging stock markets. As always it's a great opportunity to get the views of experienced investors on the ground, and those who spend their days looking at these higher-risk markets.

The emerging markets team at Aberdeen thinks the US-China trade war could be one of the biggest issues for developing economies over the coming years. But at the same time, they don’t think it'll stop great companies from prospering, growing, and continuing to make money.

Therefore they focus on companies they think are the strongest within their particular area of the market. They think this gives them the best chance of remaining successful, whatever the outcome of the trade war or other political issues.

Elsewhere, they say it looks increasingly likely the US Federal Reserve will keep interest rates lower for longer, and even cut them again. This could benefit some emerging markets companies as it could help keep costs down for those that previously borrowed money in US dollars.

Our latest updates and view on Asia & emerging markets

We also caught up with some of the managers from First State's Asian equities team. They run a range of Asian funds, as well as those focused on specific countries, like China.

They don't expect to see a speedy resolution between the world's two largest economies. It's impossible to predict which side will triumph and how long the negotiations will last, and this could continue to impact investor sentiment. Even without this, markets like China have always been notoriously volatile, partly because domestic investors are known for shorter-term and more speculative trading.

That said, the managers think well-managed companies will adapt, innovate and remain competitive, even in a challenging environment. Overall they continue to focus on companies led by strong management teams, a dominant position in their chosen market, and a long-term record of sustainable earnings growth. These companies won't be completely immune to broader market volatility. But it could give them a better chance of coping with the tough times over the long run.

Read our latest update on First State Asia Focus

Latin America offers long-term potential

There's plenty going on in other emerging economies too. In Latin America, the election of Jair Bolsonaro in Brazil boosted hopes of economic reform and an improvement in its outlook for growth.

Argentina, on the other hand, is currently trying to stave off a spiralling economic crisis. Most recently the country had to ask creditors for more time to pay off foreign debt, while it also put controls in place to stop its currency falling further, after losing a quarter of its value.

While volatility is likely to persist, we think Latin America offers plenty of long-term potential. Joseph Hill, Investment Analyst, takes a closer look in his latest report.

Latin America – time to step up?

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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