Buy BRICs on the Dips: Asset Manager
Key emerging markets now have the financial firepower to offset lower exports to the developed world through home-grown consumption, according to HSBC.
"Strong domestic consumption is imperative in order for emerging markets to sustain a healthy growth differential relative to the developed world," Philip Poole, global head of macro and investment strategy at HSBC Global Asset Management, told CNBC Wednesday. "The good news is that we already have evidence of this and economic policies in markets such as China are increasingly focused on supporting domestic consumption growth."
Valuations are now at fair levels, with current prices presenting a good entry opportunity for investors with a long-term investment horizon, Poole said.
Russia is his favorite pickin the BRICs (Brazil, Russia, India, Chian). It's a country that had become rather unfashionable as oil prices fell and the Kremlin prepared to sell off a number of state-owned companies.
"Russia is currently our largest overweight position," Poole said. "It is unloved and undervalued by the market at present, with the stock market trading at just 5-times 2011 price earnings. However, with valuations expected to revert in due course, and with the fundamentals remaining sound, the opportunity for upside looks favorable."
Poole and his team at HSBC Global Asset Management are also upbeat on the prospects for China.
“Recent news of wage increases, although not ideal for China's export competitiveness, should be positive for domestic consumption," he said.
"The recent announcement that China would end its de-facto dollar peg and return to the managed float system could strengthen the Yuan by better reflecting its intrinsic value," he said. "This shift in policy is a positive development for China."
Poole also said he likes Brazildue to its government's "sovereign discipline and relevant market reforms over the past 20 years," but is less optimistic about the prospects for India.
“Our biggest underweight country is India, which remains expensive in emerging market terms at 14.2-times calendar 2011 earnings," he said.
“So, while the level of global uncertainty remains uncomfortably high valuations now point to value in BRIC equity markets, with Russia standing out," Poole said. "On this basis, any correction on low volumes over the rest of the summer should be seen as an attractive entry point."