Despite the gloom and doubt surrounding China and other emerging market economies, light at the end of the tunnel should appear this year as conditions are expected to improve.
Van Eck emerging markets equity strategy portfolio manager David Semple said he remained optimistic 2016 would end well due to a number of factors.
“We anticipate better economic numbers out of China, and at least we have started down the journey of the [United States Federal Reserve] tightening,” Semple said.
“A combination of Fed tightening and cheap emerging market valuations historically sets up good emerging market performance, and we certainly hope that this will be the case in 2016.
“China gets the blame for just about everything bad that happens in global markets, but the reality is different.”
He said as emerging markets grew, the key was to be very specific about where to invest.
“There are companies in the technology, healthcare, tourism, education and insurance sectors that will generate higher profitability this year,” he said.
Van Eck Global would not be investing in state-owned banks, heavy industries or the “smoke stacks”, but instead favoured “the new China”, which focused on clean factors in air, water and governance, he said.
Overall, he said he expected lower but better growth from China, with continued monetary and fiscal easing in 2016.
He also noted a “quality growth bubble” in emerging markets was one of the buzz phrases, which implied companies with quality characteristics were trading at a significant premium to other emerging market companies.
“As far as we can see this seems to be a problem that is associated with large caps in emerging markets,” he said.
“Therefore, considering all caps is important, as we do not see overvaluation in mid and small-cap quality growth stocks.”
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