EM set to suffer correction ‘within weeks’, warns Hexam

Emerging market countries are likely to suffer another major correction within weeks, according to Hexam Capital Partners fund manager Bryan Collings.

Collings, lead manager of the ResolutionAsset Global Emerging Markets fund, and former head of global EM equities at Baring Asset Management, believes market uncertainty and increased volatility will trigger a 6-10 per cent drop in markets within the coming weeks.

This fall, which should have a more limited impact on developed markets, will, says Collings - who set up Hexam, a 50/50 joint venture with Resolution Asset Management, last year - represent the last chance for investors to enter EM markets at their most attractive levels in 2007.

He believes the best opportunities, post-correction, will present themselves in Turkey, Russia and particularly Brazil. On a sector basis, Collings believes that commodities still offer investors considerable upside, and favours stocks that will appreciate in their local currency.

He says: “Markets remain unsettled and the change in volatility has been huge. Emerging markets are simply not out of the woods yet and I think another correction is imminent – within weeks.

“This is not a dire scenario but we think it is extremely likely. The market will present chances to increase investors’ beta, particularly in countries like Brazil and Turkey, which we believe will do very well. Get the entry point right and you should benefit from both capital appreciation and the dividend yield.

“The correction will probably be the last chance investors have to enter the market at such attractive levels this year. We remain extremely positive on emerging markets and resources over the medium to long term and thus regard any short term correction as healthy given global uncertainties. Beyond this, emerging markets will present healthy returns – these economies are generally in very good shape.”