Thank you for returning to read my blog. This time, instead of hearing from me, you will be reading the thoughts of a member of the Templeton Emerging Markets team – Sven Richter is a portfolio manager and has been with the team for almost 15 years. He is based in Johannesburg, South Africa, and I asked him to write on my behalf this week. Sven represented our team at a client conference hosted by Franklin Templeton Investments in Vienna last week to discuss global investment themes and trends, and here are his observations from the trip:
By Sven in Vienna
I have been to Vienna about half a dozen times, and I was also lucky enough to live here for a period. The weather for the event was rainy, which was a pity for many of our clients who had never seen the beautiful city of Vienna, but what impressed me most was the high level of interaction from the clients at the event. They were very knowledgeable and asked many interesting and thought-provoking questions.
I was on a panel discussion on opportunities in the emerging markets equity and fixed income space. With my colleagues from the Franklin Templeton Fixed Income Group, we identified two main themes. We are still finding opportunities to invest and still see attractive upsides for the stocks that we select.
Firstly — in our view, the opportunity for finding stocks and fixed income investments today has moved to a stock-specific and bond-specific level. Markets are not cheap as a whole compared to where they were a year ago, but we are still finding opportunities to invest. We have to use our research and knowledge to find the right investment.
Secondly — it is crucial to visit the countries and companies that we invest in. On the fixed income side, especially when investing in the smaller emerging markets that are now being called the Frontier Markets, we believe that the market information is just not available on a Bloomberg screen and nothing gives you a feel for a country more then a walk down the streets.
For us in the emerging markets equity space, we also feel it’s crucial to get out there and see what’s happening. Recently, we were in Nigeria and besides meeting with the companies, we just observed how many people were waiting at the hotel lobby for transport in the morning. We also paid attention to what they were wearing, such as shirts with an engineering company’s brand, which can give you an idea of the activity level in the country.
Part of our panel discussion also revolved around the better fundamentals of the emerging markets compared to 10 years ago. In most countries, inflation has been brought under control, and debt in both the companies and countries are at levels we generally believe to be sound. In the past many of these countries and companies had high, unsustainable amounts of debt.
An important theme I presented at the conference was the change we are seeing in the emerging markets — how the consumer is getting wealthier, in particular our view that the middle class in the emerging markets may triple over the next 10 to 15 years, and how this would drive consumption changes. I also focused on the resulting effect this would have on companies providing goods and services for the consumer such as banking and finance, and the increased demand for commodities that would arise from this.
It was interesting to note that most of the clients felt that the financial crisis created opportunities to invest in equities and expressed their view that emerging markets equity could potentially outperform the general equity markets. As to which region they thought was most attractive, most clients (by a small margin) picked Asia and expressed the most concern about Eastern Europe. Together with my fellow fixed income colleagues, I do want to stress that Eastern Europe is not one homogeneous place and that the Baltic States of Estonia, Latvia and Lithuania are very different from places such as Hungary and Poland.
What you see, may not be what you get. To quote Mark, “In the perception gap between emotion and reason, you’ll find your buy window.”