Sebastien Page believes stock investors have the wrong idea about emerging markets.
T. Rowe Price’s head of global multi-asset says investors’ outdated views are keeping them from capitalizing on what he thinks is a good area to put money right now.
Emerging markets “are more resistant to contagion than they use to be. They are less dependent on commodities,” he said. Technology companies, he added, are much larger and important EM players than in the past.
Page and his team divide about $268 billion among T. Rowe Price’s stock funds, bond funds and other investments for T. Rowe Price’s private clients, institutional investors and target-date funds. Each fund’s managers decide on their own asset allocation and pick the individual securities. Page’s positive view of emerging markets isn’t a “house view” for T. Rowe Price — it only applies to the multi-asset portfolios the firm manages.
The team isn’t making recommendations about individual emerging markets. But in an interview on Feb. 6, Page said that while he is “neutral” about stocks vs. bonds globally, he and his team are “playing offense” in emerging markets.
“We think emerging-market equities have attractive valuation levels compared to history and think there are other factors that can be appreciated by the market,” he said. These factors include fear of political disruption (including the trade conflict between the U.S. and China) being already priced into stocks, the recent change in Federal Reserve policy and the expectations of a declining dollar.
Here’s a chart showing the total return of the MSCI Emerging Markets Index 891800, -0.56% against the Russell 1000 Index RUI, +0.07% and the S&P 500 SPX, +0.07% for one year through Feb. 6:
Read an opposing view: Howard Gold offers 4 reasons not to follow Wall Street down emerging markets’ rabbit hole
A more dovish Fed is typically good for emerging markets because “a lot of those companies and economies are financed in U.S. dollars,” Page said. “They are sensitive to U.S. interest rates and the direction of the dollar itself.”
Those factors and expectations of massive economic stimulus by China’s government, along with the possible resolution of the U.S.-China trade conflict, underline Page’s positive view of emerging markets for the next six to 18 months.
Value picks in emerging markets
At T. Rowe Price, the most obvious place for Page to allocate money for emerging-market stock investments is the firm’s $12.6 billion Emerging Market Stock Fund PRMSX, -0.27% which has a five-star rating (the highest) from Morningstar. However, it is closed to new retail investors.
The firm’s Emerging Markets Value Stock Fund PRIJX, -0.15% is open. It was established three years ago and is small, with $72 million in assets. It also has a five-star rating from Morningstar.
Chinese stocks accounted for nearly one-third of T. Rowe Price Emerging Markets Value Stock Fund as of Jan. 31, with South Africa a distant second. More than 35% of assets are invested in the financial sector, followed by 15% in industrials and business services, also as of Jan. 31.
The fund discloses its 10 largest holdings (out of 58) only as of Dec. 31. Here’s the list:
|Company||Ticker||Country||Industry||% of portfolio|
|Samsung Electronics Co.||005930, -3.03%||South Korea||Telecom. Equipment||4.9%|
|Absa Group Ltd.||ABG, +0.27%||South Africa||Major Banks||2.6%|
|Agricultural Bank of China Ltd. Class H||1288, -1.37%||China||Regional Banks||2.5%|
|Sberbank Russia OJSC||SBER, +0.00%||Russia||Regional Banks||2.5%|
|Naspers Ltd. Class N||NPN, -1.61%||South Africa||Cable/Satellite TV||2.5%|
|LT Group Inc.||LTG, +1.04%||Philippines||Beverages: Alcoholic||2.5%|
|Nedbank Group Ltd.||NED, +0.43%||South Africa||Regional Banks||2.4%|
|Banco BTG Pactual SA Pfd A||BPAC5, +0.50%||Brazil||Investment Banks/ Brokers||2.4%|
|Standard Chartered PLC||STAN, -1.18%||United Kingdom||Major Banks||2.4%|
|Banco Bradesco SA Pfd||BBDC4, +1.06%||Brazil||Major Banks||2.4%|
U.S.-traded American Depositary Receipts (ADRs) are available for some of these companies:
• Samsung SSNLF, -3.07%
• Absa Group AGRPY, -0.19%
• Agricultural Bank of China ACGBY, -0.78% ACGBF, +1.25%
• Sberbank Russia SBER, +0.43% SBRCY, +0.24%
• Naspers NPSNY, +0.00%
• Nedbank Group NDBKY, +1.39% NDBKF, -4.27%
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