'News in Brief' announcement from Barings on current views and investment strategy for two of Barings' emerging market products; the Baring Asia Growth Fund and Baring Dynamic Emerging Markets Fund.
EMERGING ASIA OFFERS EXCITING OPPORTUNITIES
While there are renewed concerns over the strength of the global economic recovery, the outlook for Asian economies continues to be supported by an attractive mix of favourable demographics, strong domestic demand, and a willingness by central banks to accommodate the region's rapid growth while seeing to be tough on inflation.
Colin Ng, Head of Asian Equities and investment manager of the Baring Eastern Trust and Baring Asia Growth Fund, believes that investors can look ahead to compelling opportunities across a range of attractively-valued local markets.
"Our strategy focuses on a number of domestically-driven themes, such as those companies benefiting from growth in Chinese consumption, domestic reflation, infrastructure-related industrials, and commodities and consumption proxies in the South East Asian region.
"Korea, for example, is one of the cheapest markets in the region. Many leading exporters have become competitive on a global scale with brand awareness on par with many Japanese rivals," he says.
"In fact, we are beginning to see pockets of value emerging across all of Asia. After all, we are investing in perhaps the fastest growing economic region in the world, supported by strong domestic demand and favourable demographics, particularly in China and Indonesia."
BARING DYNAMIC EMERGING MARKETS FUND OFFERS LONG TERM RETURNS WITH REDUCED VOLATILITY
Recently launched on the 30th June, the Baring Dynamic Emerging Markets Fund targets the long-term returns associated with emerging equity markets but with reduced volatility. Barings argues that the critical skill set in achieving this target is dynamic asset allocation, and a willingness to move between different asset classes at different times.
Given a soft macro economic backdrop, the Fund has a relatively low risk profile at present, with just over 30% invested in equities. Here, Barings believes that China currently offers the most compelling value within the wider emerging area.
Percival Stanion, Head of Barings' multi-asset team and investment manager of the Baring Dynamic Emerging Markets Fund says: "Our view is that inflationary pressures in China will likely start to ease towards the end of the year with earnings growth increasingly driving equity market performance."
"In terms of current positioning, just over half of the Fund is invested in government bonds. We believe that by being selective in our government bond holdings, we can gain exposure to effective risk diversifiers with safe characteristics, and here we favour economies such as Australia, Mexico and Poland - markets with high real interest rates and few credit quality issues on the horizon.
"We have steadily increased our position in Australian government bonds since the beginning of the year across all the multi-asset portfolios we manage. Currently accounting for around 20% of the Fund, we believe that these bonds are less exposed to those risk stress-points many investors are concerned with, particularly low growth rates in developed markets and inflation in the emerging markets. Moreover, Australian bonds are priced for continued economic acceleration across Asia and should offer effective protection should regional growth moderate or slow over the coming months.
"Gold is another asset that has been traditionally viewed as an effective risk diversifier. Although it has become more highly correlated with other assets in recent times, it remains useful from a risk reduction perspective and we currently have around 7% exposure to gold."
Percival concludes: "With the investment outlook unclear, we expect markets to remain choppy until we get greater clarity over the outcome of the sovereign debt crisis in Europe and the trajectory of global growth. Looking ahead, a sharp sell-off in asset prices, a significant improvement in emerging market inflationary pressures, or an oil price collapse could all potentially trigger an improvement in the outlook and an increase in our overall appetite for risk assets. But for now we are content to keep risk down at the lower end of the spectrum."
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