Best Emerging Markets To Buy Now

October 22, 2015

Andres Garcia-Amaya is a macro research analyst for the Emerging Markets and Asia Pacific Equities team at J.P. Morgan Asset Management. He performs in-depth macro research on economies and markets that informs the team’s country and sector top-down views.

Prior to joining the Emerging Markets and Asia Pacific Equities team, Garcia-Amaya was a global markets strategist within the Global Market Insights Strategy team, where he was responsible for delivering timely market and economic insight to financial advisors globally. recently caught up with Garcia-Amaya for his views on the latest developments in emerging markets. Do you think the China slowdown fears are overblown?

Andres Garcia-Amaya: There's no doubt China's growth has been decelerating, but I'm skeptical of the majority view that we're headed for a hard landing.

The magnitude of the deceleration has been exaggerated. What we saw in August and September were extreme circumstances, where the hard-landing scenario became the base case for investors.

From that perspective, you don't actually need to get good data; you just need to get less bad data for the markets to rally. In the last couple of weeks, that's what we've been getting as the market has rebounded. In your portfolios, do you tend to buy individual securities? ETFs?

Garcia-Amaya: We do buy individual securities. We keep the conversations to the sector or country level, but our investments are done at the stock level. Would you be buying China stocks now?

Garcia-Amaya: For the top-down informed portfolios, China is one of our overweights. As valuation gets lower, it becomes more attractive for us, considering we don't see any structural change to the story. China is moving from an investment-heavy economy to a consumer-driven economy. That's going to take years, not quarters. But it's actually a healthier type of growth, although the level might not be as high as it used to be. Another emerging market you said you liked was Russia. You talked about how the valuations are extremely attractive there. Can you tell us about that?

Garcia-Amaya: In Russia, the forward 12-month price/earnings ratio is actually lower than the dividend yield. The forward P/E is around 4.7 and the dividend yield is around 5 percent.

If you look at the emerging market universe, and you go back 25 years, this type of situation has only occurred 165 times. That's less than 0.1 percent of the time.

And when you look at the performance 12 months out after this type of situation happens, you have fairly robust returns, with an average 65 percent increase.

It's clearly a value call on Russia. We could sit here and debate all the wrong things that have gone on in Russia, including the fall in oil from $120 to sub-$50, the sanctions, the geopolitical uncertainty, etc. Having said that, at some point, valuations price in all that and more. We feel that's the case right now.

Find your next ETF

Reset All