Fund managers are pushing an optimistic message in light of the China sell-off and increasing investment in markets from the US to the emerging world.
China has been at the center of a 25% fall since April of the MSCI Emerging Markets (Total Return) Index in dollar terms, which London-based Jupiter Asset Management says indicates that markets may be overly focused on perceived risks to China and emerging markets in general.
A drop in the price-to-book ratio of stocks in the MSCI index means cash on company balance sheets has become a significant proportion of their overall value.
The firm highlights a few companies, such as Samsung Electronics, which has cash worth 32% of its market capitalisation.
Ross Teverson, director, global emerging market equities at Jupiter, says recent market events “appear to us as more of a buying opportunity than a reason to sell”.
“We believe that in recent months and weeks, the market has become disproportionately focused on risk rather than opportunity and that, while China faces challenges, there are reasons to be optimistic,” he says.
Innovative companies in China are driving or benefiting from positive structural change and China’s shift to higher consumption creates opportunities for those companies with the services and products Chinese consumers demand.
“In our view, recent market volatility has created an opportunity to buy into companies geared into some compelling longer-term dynamics at attractive valuations.”
Aviva Investors multi-strategy team, meanwhile, has increased its position in Europe, Japan and US equities in recent days.
Peter Fitzgerald, head of multi-asset at the firm, says: “The outlook for the global economy remains positive and recent events do not appear to warn of a significant global downturn or recession.
“Worse than expected Chinese growth and the first US rate rise since 2006 are legitimate concerns for markets, but both seem to have been largely ‘priced in’ to asset valuations for some time. We do not believe that tighter US policy will derail the recovery.”
The team continues to prefer prospects for developed markets over emerging markets.
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