Fund Managers' Top Emerging Market Stock Picks
Seven of 10 fund managers are betting that China and other emerging markets will lead the global economic recovery, according to a Merrill Lynch fund manager survey, and that could mean solid investing opportunities abroad.
The MSCI Emerging Markets Index (see charts) , which measures equity performance in emerging markets, is up 31.75 percent, while the S&P 500 is down 1.80 percent (see charts).
“The developing world is still struggling, but emerging markets are demonstrating good resilience,” said Jerry Wang, equity analyst for the Delaware Emerging Markets Fund, a Morningstar four-star fund that is up 30.41 percent this year. “Rising income and consumption levels,” has him very positive on growth. And because companies cut inventory levels quickly in response to the global slowdown in demand, Wang sees it as "a sign of maturation” in the emerging economies.
Emerging Market Stock Picks
Wang likes Focus Media Holding Limited, a digital advertiser in high traffic locations within office buildings in China. The “once high flying stock” had problems with its acquisition strategy and its stock price took a hit, he said. Focus Media recently struck a deal with SINA Corporation, a Chinese Web portal.
Wang also likes Votorantim Celulose e Papel SA, a Brazilian forestry company. After a pending acquisition, Votorantim Celulose will become the largest player in the global hardwood pulp industry according to Wang. Shorter growing cycles, abundant land and water reserves give Votorantim Celulose a cost advantage over its competitors.
In addition to population growth and growing consumption levels, Thomas Leventhorpe, considers urbanization and infrastructure needs when selecting stocks. Leventhorpe is vice president and portfolio manager of the JPMorgan Emerging Markets Fund, a Morningstar four-star fund that is up 25.20 percent this year. He said emerging markets will require $21 trillion in infrastructure work between now and 2017. Leventhorpe said increased demand for water is “a trend not likely to reverse.”
He likes Anhui Conch Cement Company, a cement and clinker manufacturer in China. The cement industry will benefit from China’s $586 billion stimulus program, and Anhui Conch has been upgrading their facilities and making them “less polluting, more environmentally friendly” he said. Leventhorpe also likes Taiwan Semiconductor Manufacturing, but said investors should be aware of the volatility and risk of emerging markets because “they have less mature financial institutions, regulation and transparency.”
Borge Endresen focuses on earnings, quality and valuation when selecting stocks for the AIM Developing Markets Fund, another Morningstar four-star fund that is up 35.79 percent this year. He prefers companies “that are more focused on their local markets with above average growth prospects.”
Endresen likes Naspers, a South African multimedia company with operations in China, India and Brazil. Naspers owns a stake in Tencent, the number one instant messaging provider in China. Naspers is growing more than 20 percent with virtually no debt and is “a hidden value story with tremendous value prospects,” said Endrensen.
He also likes Haci Omer Sabanci Holding, a Turkish diversified conglomerate comprising 68 companies within the financial services, retail, automotive, textile and energy sectors. Endrensen said the Sabanci Holding is selling at a 30 percent discount now and is “attractive long-term with relatively little risk.” Endresen says investors should consult their financial adviser when considering emerging market funds.
Disclosures: Wang, Leventhorpe and Endrensen hold stocks in their funds.