Women in Investing conference 2011
Investing in Emerging Markets:
Opportunities, Risks, and Outlook
“Now is a great time to invest in emerging markets,” said Patricia Ribeiro, vice president and portfolio manager at American Century Investments, as she commenced a panel discussion focused on “Investing in Emerging Markets: Opportunities, Risks, and Outlook,” at Women In Investing 2011. “Emerging markets aren’t experiencing the economic problems that Europe and the U.S. are,” she said. “The economies of many countries are still solid. They have an aversion to risk; they don’t want to be exposed. Some are fighting inflation – but growing too fast is not a bad problem."
Although she views emerging markets as immense opportunities, and considers them more attractive today than they were one and a half years ago, Ribeiro stays abreast of developments that have the potential to affect investments in specific countries. For example, her portfolio includes India, and as she noted, “They import a lot of commodities, and commodities costs are going up. Also, inflation leads to decelerating growth. So it’s harder to find ideas in India.” She’s more optimistic now about Indonesia, where a growing middle class is creating tremendous demand in goods and services. “Overall, it’s a great place to be,” Ribeiro said. “New companies are coming through; it’s a very positive outlook.”
Panel moderator Shigeki Makino introduced the next topic by noting the potential for material slowdown in China. Makino, Johnson’s Executive-in-Residence, has been an investment professional since 1989 and recently retired as managing director and head of global large cap equity at Putnam Investments.
Camille Carlstrom, an analyst at Putnam Investments, said she’s “constructive about China.” Nevertheless, she called this a “character-building year for those investing in China.” In addition to reviewing some of the country’s unique lending and spending practices, she noted that the closed economy was a key driver for higher property prices due to the lack of availability of other investment opportunities. She cited one reason she does not believe that there will be a property crash: “Local governments can’t raise taxes, so they raise funds by selling property,” said Carlstrom. “Consequently, they need higher-priced property. … One question is, to what degree can the Chinese government manipulate property prices to avoid failure?”
Ruth Nagle, equity research analyst at Wellington Management, said she is very happy she’s in global equities. “Europe, the U.S., and other developed markets will be dealing with the economic crisis for a long time,” she said. “The crisis in developed markets equals opportunities for emerging markets. Emerging markets offer great ground to look for investment ideas.” She spoke about the opportunities for banks, noting that European banks are more entrenched in Asia than Latin America, and that Asian banks “will get a chance to do what they haven’t done before – infrastructure, aircrafts, airports.”
Nagle further noted that while U.S. and European banks operate significantly below Basel III rules, emerging markets are already operating at that level. “That’s a very good quality,” she said. Regarding valuation, she noted that equities have been sold off as Europe liquidates, and “there are bargains to be had.”
Natasha Braginsky Mounier, vice president and investment analyst at Capital Research Global Investors, spoke of the highly cyclical quality of emerging markets, recalling when Russia was booming and she was a Russian analyst. “After the Asian devaluations of 1987 … it was only a matter of time for Russia to explode,” she said. “And it certainly did.”
Mounier is now in global mutual funds, and favors investing in emerging market telecoms. She spoke of the growth in Scandinavian telecoms throughout Turkey and Eastern Europe. “If I like a theme in emerging markets, I want to invest as much as possible in that theme,” she said.
Panelists responded to questions from the audience about how to pare down the investment universe, hedging currencies, and how to get comfortable investing from a distance (“we all travel”) — which led to a discussion of transparency in corporate governance. More than one noted that Russia and China are both problematic on this score, although Ribeiro said that “the level of disclosure has increased exponentially over the last ten to 20 years – especially compared to pre-Internet days.”
The panel concluded with a discussion about the importance of cultural sensitivity. As Carlstrom, who always travels with an interpreter, put it, “Culture is most important. Language is second.”