Templeton Asset Management Ltd. sees “bargains” in the biggest emerging markets after stock declines dragged the MSCI BRIC Index (MXBRIC) into a bear market, according to Co-Chief Executive Officer Dennis Lim.
“Emerging-market equities are cheap and as long-term investors, we have remained invested,” Lim, who helps manage $48 billion of emerging-market funds, said in a phone interview from Singapore on June 5. “We are finding a lot of bargains in China, India, Russia, Thailand, Brazil, and even in Africa.” He declined to name specific stocks or make any forecast on stock gains or declines because of company policy.
The benchmark index of shares in Brazil, Russia, China and India has fallen 21 percent from this year’s high on March 2 on concern Europe’s debt crisis and slower U.S. and Chinese economic growth will curb exports from developing nations. The MSCI BRIC gauge traded at 8.09 times estimated earnings on May 23, the lowest valuation since Dec. 8, according to data compiled by Bloomberg. The measure rose 0.6 percent at 10:24 a.m. in Shanghai.
Lim said he favors consumer-related and commodity companies in developing nations. Consumer stocks are backed by domestic consumption while increasing demand for commodities from countries such as India boost prices in the long term, he said.
The Templeton BRIC Fund (TABRX:US), which Lim co-manages, has fallen 7.7 percent this year, compared with the MSCI BRIC Index’s 3.7 percent decline, according to data compiled by Bloomberg.
The fund owned as of March 31 shares of Vale SA, the world’s largest iron-ore producer, Petroleo Brasileiro SA, Brazil’s state-owned oil company, and PetroChina Co., the country’s second-largest oil refiner, according to a factsheet on Templeton’s website.
Shares of Rio De Janeiro-based Vale have dropped 2.1 percent this year while Petrobas, as the Rio-based oil company is known, has tumbled 11 percent in Sao Paulo trading. PetroChina, based in Beijing, has gained 4.2 percent in Hong Kong trading.
“The markets have been nervous about China’s so-called slowdown,” Adrian Lim, a senior investment manager at Aberdeen Asset Management Plc, said in an interview at Bloomberg’s headquarters in New York yesterday.
The Chinese economy grew 8.1 percent in the first quarter, the least since the three months ending June 30, 2009. Europe is China’s biggest export market, making up about 18 percent of the nation’s overseas shipments, according to Shenyin & Wanguo Securities Co.
Lim, who helps oversee $102 billion for Aberdeen in the Asia-Pacific region, said China’s economic slowdown provides “a decent opportunity” to add stocks and he remains bullish on consumer companies after the firm boosted holdings in Hong Kong- traded shares of PetroChina and China Mobile Ltd. (941), the country’s biggest mobile-phone carrier, in the past two years.
The MSCI Emerging Markets Index (MXEF) dropped 12 percent last month, the most since September, as concerns over Europe’s debt crisis and slowing global growth hurt demand for riskier assets.
Emerging-market equity funds posted outflows of $7.8 billion in the second quarter, analysts led by Markus Rosgen at Citigroup Inc. wrote in a report dated June 1, citing data compiled by EPFR Global.
“It is difficult to predict how markets will perform in the short-term,” Templeton’s Lim said. “We have already seen significant corrections last month, so a lot of the bad news is already priced in.”
The MSCI Emerging Markets gauge has fallen 16 percent from March 2, approaching the 20 percent threshold that some investors regard as a bear market. Shares in the emerging- markets index traded at 9.58 times estimated earnings on June 4, the lowest level since Jan. 9.
The gauge now trades at 9.9 times, compared with 11.8 for the MSCI World Index of developed nations.
“Emerging markets can easily outperform developed markets” amid low valuations and faster economic growth prospects, Alistair Lowe, chief investment officer for global equities at State Street Global Advisors, said in a briefing in Singapore yesterday.
The BRIC countries will probably expand at an average pace of 5.5 percent this year, compared with 1.4 percent for developed countries, according to April forecasts from the Washington-based International Monetary Fund.
A worsening debt crisis in Europe may hurt investor confidence, Templeton’s Lim said. The Group of Seven nations agreed on June 5 to coordinate their response to Europe’s turmoil, which has tipped at least eight of the 17 euro-area economies into recession.
“We take a five-year view,” he said. “If we are buying today, we are buying based on what we expect to happen in 2017.”
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