A Look at Emerging Countries

22 December 2015

Having just returned from a trip to Asia, Moreno Tatangelo, senior analyst at Kairos, discusses local sentiment and provides a cross section of potential investment areas.

What is the atmosphere in Japan?

The fund managers with whom we met do not foresee any significant rallies on stock markets in the near future. Indeed, unless there is a genuine strengthening of quantitative easing and, consequently, further currency depreciation, one of the market’s main performance drivers in recent years will be lost.

In this context, managers prefer to focus their attention on domestic players and small caps, confiding above all in Prime Minister Shinzo Abedi’s ability to stimulate spending with a package that should be submitted to Parliament within the next few months.

And throughout the rest of Asia?

Investment prospects in Southeast Asian countries are not particularly bright due to the high level of corporate and household debt, which could cause turbulence for banks in these countries.

India remains interesting although performances have been disappointing compared to the expectations fueled by the election of Modi. One of the reasons has certainly been the lower-than-expected growth in profits, which should, nevertheless, normalize in the next few months. The economy is showing continuous improvement, fundamentally due to manufacturing and the public sector: the economy expanded at around 7.4% in the fourth quarter. There is still a lot to do politically, but India remains the most attractive emerging country in the medium term.

What are the implications of the International Monetary Fund’s recent decision to include the Renminbi in the SDR basket?

In China, the Renminbi’s inclusion in the basket of currencies used to determine the value of special drawing rights will certainly push the authorities to reform and open their capital markets, but for the present, investors remain cautious. In terms of currency, no one believes the Renminbi will appreciate; instead, it is expected to continue to suffer downwards pressure in the wake of outflows.