The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
ôWhile some gains were given back in November on concerns about US economic and financial prospects, emerging market performance over the first 11 months of the year remained well ahead of performance in developed markets,ö says the London-based Coffey, who manages the New Star Global Emerging Markets Fund.
Higher commodity prices have improved the position of many emerging market economies. A shift in trade patterns has also been supportive.
ôAlthough it may be too early to conclude that emerging markets have decoupled completely from economic developments in the US, the growth in emerging market exports to alternative destinations has been impressive,ö Coffey says.
Over the last year, Chinese exports, for example, have increased 106% to Russia, 67% to India and 60% to Brazil, with sales to the US up just 13%. While the US remains important, the shift in trade offers some reassurance that slower US economic growth may not lead to a global downturn.
In recent years, the emerging market giants of China, India, Brazil and Russia, with their super-charged economic growth and healthy foreign exchange reserves, have proved to be profitable destinations for investors seeking outperformance. Smaller countries have also delivered impressive returns, notably Vietnam, Indonesia and the Philippines.
Looking ahead, Coffey believes the investment case for China and in particular Chinese stocks listed in Hong Kong remains strong.
ôWhile Chinese stock markets have recently retraced some gains, economic expansion has continued apace. Although this may slow slightly in 2008 due to weaker western demand, many companies have attractive prospects,ö he says.
In particular, the growth of consumer banking from small beginnings, rising wages and the wealth effect of rising property and share prices create a potent mixture, with the 2008 Beijing Olympics likely to provide a further boost, Coffey says. Sectors in China and Hong Kong with particular potential include financial services and property, he adds.
India also has attractive prospects, with investors potentially benefiting from the countryÆs proactive monetary policies, Coffey notes. ôIndustrial production is likely to remain healthy, with falling market interest rates potentially supporting growth. Deposit growth has also been buoyant, a trend that should provide support for banking sector liquidity.ö
The key issues for global emerging market investors moving into 2008 will be the severity of the US slowdown and the extent to which this spreads, Coffey notes. ôAs investors cast their nets wider in the quest for returns, emerging markets should continue to benefit, not lease because of their perceived haven status in the midst of developed market turbulence.ö
Mega players Nippon Life and Dai-ichi Life are looking for opportunities in higher-yield single-A US corporate bonds, which offer more appealing yields than stagnant domestic offerings.
The “lower for longer” monetary policy and stimulus packages, coupled with the rolling out of vaccine programmes favorably support real estate investing in the region, with offices and data centres presenting forward-looking opportunities.
As US fixed income default rates rose and yields fell during the pandemic, are Asian bonds, which have had more stable yields through 2020, looking more attractive?
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