Emerging market equities in 2017: long-term opportunities but risks remain



​Glen Finegan, Head of Emerging Market Equities, continues to believe that a long term, risk-aware approach that focuses on the fundamental trends within a business is more important than trying to predict fluctuations in the wider economy.

What lessons have you learned from 2016?

2016 has confirmed our view that understanding fundamental trends within a business are a more predictable means of valuing a company’s equity than trying to predict fluctuations in the wider economy.
The year has also reinforced our view that it is important not to compromise on quality, to maintain a long-term view and to apply a strict valuation discipline. Emerging markets (EMs) can be more volatile than developed markets and we believe this requires a risk aware stock-picking approach that seeks to preserve as well as grow capital.

What are the key themes likely to shape the markets in which you invest in 2017?

The fact many EMs have immature legal and political systems often means inadequate levels of minority shareholder protection and higher levels of economic volatility. This is why we believe it is important to focus on the highest quality companies, and think more about what can go wrong than what might go right.

For 2017 and beyond, the longer-term opportunities for investment in some EMs are significant and well documented. Supportive demographic trends, such as population growth and a rise of the middle income consumer, are driving demand for a broad range of products and services that those of us in the developed world take for granted.

What are your highest conviction positions moving towards the new year?

Sector and country allocations within the portfolio are determined by stock selection and we search for good-quality companies with strong long-term prospects. A strict valuation discipline means we are often more attracted to those quality businesses which perhaps face a dull outlook or even some short-term headwinds. As a result our portfolios tend to look very different to the benchmark and many competitors.

Currently, we believe some well-run South African businesses trade at reasonable valuations.  All of our South African companies are expanding their operations into Africa, which may mean they can grow revenues and earnings for a long time. 

Generally, we avoid state-owned corporations and as a result we have a relatively low exposure to Chinese companies, which, in our view, are often hindered by a lack of alignment between foreign minority shareholders and the government. Even when we come across a healthy state-owned company on a reasonable valuation, we worry it may be asked to do ‘national service’ in an attempt to shore up the economy and protect jobs in uncompetitive industries.

Instead we seek to invest alongside controlling shareholders and management teams with proven track records of integrity and strong financial returns. Our preference is for companies with long-term owners, sometimes a family group, whose wealth is invested in the same equity as that available to third party investors. This provides comfort that our interests are aligned.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

Important information

Please read the following important information regarding funds related to this article.

Henderson Gartmore Emerging Markets Fund

The Henderson Gartmore Fund (the ""Fund"") is a Luxembourg SICAV incorporated on 26 September 2000, managed by Henderson Management S.A. Any investment application will be made solely on the basis of the information contained in the Fund’s prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the Fund’s prospectus and key investor information document before investing. A copy of the Fund’s prospectus and key investor information document can be obtained from Gartmore Investment Limited in its capacity as Distributor or Henderson Global Investors Limited in its capacity as Investment Manager and Distributor.

Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

Past performance is not a guide to future performance. The performance data does not take into account the commissions and costs incurred on the issue and redemption of units. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

The Fund is a recognised collective investment scheme for the purpose of promotion into the United Kingdom. Potential investors in the United Kingdom are advised that all, or most, of the protections afforded by the United Kingdom regulatory system will not apply to an investment in the Fund and that compensation will not be available under the United Kingdom Financial Services Compensation Scheme.

Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. Key Investor document is also available in Spanish. All of these documents can be obtained free of cost from the Fund’s registered office in Luxembourg: 2 Rue de Bitbourg, L-1273 Luxembourg”, in Germany: Henderson Global Investors, Bockenheimer Landstraße 24, 60323 Frankfurt, in Austria: Bank Austria Creditanstalt AG, Am Hof 2, 1010 Wien, in Spain: offices of the Spanish distributors, a list of which may be obtained at www.cnmv.es (Henderson Gartmore Fund is registered with the CNMV under number 259); in Belgium: Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; in Singapore: Singapore Representative Henderson Global Investors (Singapore) Limited, 138 Market Street #34-03/04 CapitaGreen, Singapore 048946; and in Switzerland from the Swiss representative: BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, CH-8002 Zurich who are also the Swiss Paying Agent.

Please note that Isle of Man investors will not be protected by statutory compensation arrangements in respect of the Henderson Gartmore Fund. Telephone calls may be recorded and monitored.

Information on this document is on Henderson's best endeavours.

Specific risks

  • If you invest in a share class denominated in a currency other than the fund’s base currency you are subject to foreign exchange fluctuations that may affect the value of your investment.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • This Fund invests in shares, which may be more volatile than other asset classes such as cash or bonds. The Fund may utilise derivatives for efficient portfolio management.
  • Emerging markets tend to be more volatile than more established markets and therefore your money could be at greater risk. Other risk factors such as political and economic conditions should be considered.
  • The fund is exposed to changes in exchange rates which may cause the value of investments to fall or rise independently of the underlying holdings.

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