Understand emerging markets opportunities and the American Century advantage.
By Patricia Ribeiro - January 8, 2019
After a tough 2018, I’m very optimistic about emerging market equities this year. Sure, there are still headwinds—notably, the ongoing trade dispute between the U.S. and China—but I do believe the two nations will work out an agreement for one simple reason: no one wins a trade war.
There are other reasons I’m anticipating a better year in my investment discipline. First, the growth drivers are still there in emerging markets. Second, valuations have gotten attractive. And third, with the prospect of the U.S. Federal Reserve tapering its interest rate increases, that could present a nice tailwind for emerging markets, as well.
In my latest video, I present my argument for investing in emerging market equities, as well as offering a bit of insight into what worries me as we start 2019.
2019 should be a better year for emerging markets. Valuations are really attractive. The drivers, the growth drivers are still there for them.
In 2019, we’re already starting from a bottom—so there has been a lot of adjustment with pricing in the market. We're starting from lower expectations. That's why it also gives me this comfort that I think in 2019, any clarity in the macro-environment, certainly between U.S. and China, that should actually help the market.
If nothing gets resolved, then nobody's winning in this trade war. Clearly China is not, but neither is the U.S. For me, the expectation is that there will be some kind of agreement. It's difficult to figure out exactly how it's going to be, but something. And I think anything that we get to a point where there is some clarity into the future, again, that's going to be very positive for emerging markets.
I think any visibility into rates in the U.S. is a positive for emerging markets. It seems that it's going to be very manageable from the assumptions in the market today. That's very positive.
The other thing has been elections in emerging markets. We went through a series of elections in 2018. Now, in 2019, there are a few—India for example, Indonesia—but they should be a lot more manageable. I think the challenge that we saw in 2018 was that there were several countries and also there was very little clarity in who was going to win, what would be the policies of these countries going forward. That's out of the way, so that should be another positive for the emerging space as well.
There are two names that we like in the apparel exports to the US, in the apparel space. One is Shenzhou; it's a Chinese company. They do textiles but it's the weaving. It's the weaving into the sports apparel from China. They do export to the U.S. They export to the U.S., continue to grow. Some of their clients are Nike, Adidas, Uniqlo, Puma. What they do in terms of the challenges with the trade war is that they export from other manufacturers that they have in countries like Vietnam and Cambodia.
The other one is a Korean company called Fila Korea. They also are focused on textiles and exports. One of the big drivers of growth for them is the exports most focused on the golf space. Finally, after several years of deceleration we are starting to see that the golf apparel, not only apparel but also golf balls for example, are starting to increase. We're seeing stronger demand certainly coming out of the US. They benefit from that as well, exporting to the US market.
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