"In the past few years, if you weren’t invested in China and tech companies, you underperformed. But that might be different now, and we have a small underweight to Chinese equities in our broad Asia funds right now. The index is about 35 per cent, and we have 30 per cent in China.”
Payne at Jupiter says he is significantly underweight China right now on concerns about the regulatory outlook, but says that valuations are starting to become more attractive.
Commodity conundrum
Apart from China, the other great driver of emerging market performance is commodities.
Charles Bond, a fund manager at Invesco, says at the start of 2021 he was buying commodity companies in anticipation of a rally as global economies re-opened, but he is now, on valuation grounds, switching to some of the sectors that have been out of favour, such as technology shares.
He says that while commodity prices are presently high by historical standards, the future prices of many commodities, as expressed by derivatives, are actually much lower, indicating the market expects commodity prices to fall from here, but that this is not reflected in the current share prices of commodity companies.
Veitch of SVM notes that if the war in Ukraine were to end, it is likely that commodity prices would fall.
Julie Dickson, investment director at Capital Group, says the best opportunities in emerging markets in the years to come are likely to be around technology stocks, rather than commodities, with China and Taiwan, in particular, being strong in biotechnology innovation and semi-conductor manufacturing.
India
As China has fallen from favour with many investors, so India has grown in popularity.
Dimmich says: “People who are worried about China have been hiding in Indian equities, making that market very expensive at this time."
Young notes one issue is that while many of the economic fundamentals are actually better in India than China, the former tends to have governments that are “hopeless”, and this restricts the capacity of the country to grow.
With this in mind, he is actually more interested in Chinese equities now, despite the problems with the economy, as he says valuations are more attractive.
david.thorpe@ft.com
