Dan Scott: You've spent a lot of your time traveling and working in the emerging markets. Are consumers as busily shopping in the emerging markets as they are in Switzerland?
Stefan Keitel: Yes, whenever I am in the emerging markets - most recently in the Middle East, and often in Asia - I can definitely feel that the emerging markets are in good shape. There is huge and visible consumer spending in the emerging markets. That's one of the structural advantages of these regions compared to developed regions.
Can we expect in 2011 that emerging financial markets will continue to outperform those in the developed markets?
I would not only focus on 2011. From a tactical standpoint, it could easily be that there will be no visible outperformance of the emerging markets compared to the developed markets. This has to do with the inflation pressure we already experience in the emerging markets such as China or India. Fears of interest rate hikes can also function as a drag on the emerging markets on a temporary basis.�But from a structural standpoint, we're extremely convinced that the emerging market story is definitely not over, as so many structural advantages will lead to a strategic outperformance. Our recommendation would be to buy into phases of neutral or underperformance of the emerging markets.
As an investor, if I've decided that I want to increase my exposure to emerging markets, how do you suggest that I gain exposure?
Definitely by a broad-based approach. We should not talk only about emerging market equities. Given the constructive cycle we are in, equities are definitely the place to be, but we should not forget emerging market debt and. local currencies. Structural advantages such as healthy ratios of debt to GDP, visible foreign currency reserves, fewer banking problems and visible demographic advantages will lead to a strategic outperformance.
What about the currency risk, should investments be hedged?
No, definitely not. When we go for investments into emerging market equities and bonds, we want to give the clear recommendation also to focus on local currencies, because all the structural advantages just described.
What percentage of an overall portfolio should emerging markets make up?
When we talk about our benchmark exposure, we are already at an emerging market quota of more than 10 percent. In normal market cycles, we can easily recommend to go for 20 percent emerging market exposure.
Concerns have started to surface on emerging markets that we're getting a general overheating and in isolated cases, bubbles. What about the overall risk profile for investors?
I would definitely not talk about a bubble in the emerging markets nor about overheating, because there are clear structural elements underpinning the emerging market story. Of course, it could be that with regard to capital flows, this will be a crowded trade for a while. But what's extremely important is that more and more strategic investors are coming to the table. This means that the money is not so fast flowing in and out. Given the fact that many investors now are strategically oriented, this means they are also integrating the emerging markets into the benchmark. We clearly expect that volatility in the emerging markets will be lower compared to the past. So in a broad-based comparison, we expect that the risk return ratio of emerging market investments will further improve in the future.
Investment guru Jim Rogers once said that in order to invest in emerging markets, the best thing you can do is to buy what the emerging market economies are buying themselves, namely commodities. What do you make of that comment?
We are also positive on commodities, because of the current stage of the cycle we are in. We made a strong call to buy real assets such as commodities, given the fact that we are now on a normalization path from a macroeconomic standpoint .The pendulum is swinging away from deflation threats to reflation and then to inflation. We are quite confident that there will be an outperformance of real assets in next decade. So we are structurally positive on commodities and would recommend taking every opportunity in phases of weakness, to extend or to increase exposure into commodities such as industrial metals, soft commodities, energy and precious metals.Legal | Politics | Sports | Teens | Webmasters
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