Global Mutual Funds Head For Emerging Hotspots

MUMBAI: India-based international mutual funds are scrounging for opportunities in emerging markets to deploy their funds profitably. According to industry sources, most overseas funds would be skipping European and American markets and shopping in growth markets.

Most fund managers are placing their bets on stocks listed on high-return emerging markets like Mexico, Brazil, Hong Kong, Poland and Korea. The reason for this, according to mutual fund experts, is that emerging markets have a favourable demographic profile. They account for about 50% of the world’s GDP and command a petty 7% weightage over world market-cap with lots of potential upside. The most impressive fact is that emerging markets have consistently outperformed European and American indices over the past few years as far as plain returns are concerned.


“Our focus is on markets with a minimum GDP growth rate of 5-6%. Most India-based funds follow the same investment rationale as Indian investors have high appetite for growth. China, Indonesia, Vietnam, Taiwan have high-value stocks,” said Tata Asset Management’s Ved Prakash Chaturvedi. Tata Asset Management recently launched the Tata Indo Global Infrastructure Fund.

A peek into the stock profile of Templeton India Equity Fund (the only international mutual fund to disclose its stock profile till now) reflects the preferences of fund managers in emerging markets.

The fund has invested around 30% of its investible pool in emerging markets. The fund has taken sizeable positions in companies like Alfa Sab Decv (Mexico), United Microelectronics Corporation (Taiwan), Lukoil-Holdings (Russia), Haci Omer Sabanci Holding AS (Turkey), Polski Koncern Naftowy Orlen (Poland) and Shanghai Prime Machinery (Hong Kong).

Though stock markets across the globe have been badly hit by inflation and subprime, emerging markets have stayed put on solid economic growth and strong investment inflows. Countries like China, Philippines and Taiwan fared exceptionally well in FY07 because these markets remained insulated from inflationary tendencies even though they booked 6-9% annual growth.

China, Philippines, Taiwan, Vietnam, Venezuela, Vietnam, Brazil, Russia and Malaysia also attracted huge foreign fund flows during the year. Matured markets in the US and European Union have been faring poorly over the past two years. Among matured markets, only the US market looks good with 3-4% growth. However, investors are not optimistic about European markets, where they feel the returns are likely to remain lacklustre.

Fund managers say there are enough stock-picking opportunities in emerging markets. It is also unlikely that funds would be holding similar stocks in their respective portfolios.

“Indian market cap is in the range of 0.5% to 1% compared with world market cap of 99%, so there should be good stock-picking opportunities outside. For our Indo-Asia equity fund, we will focus on Asian shares as growth is better here. There would be better performing set of shares in markets like Cyprus or Honduras, but Asian markets offer better risk-adjusted return,” said ICICI Prudential chief investment officer Nilesh Shah.