Emerging markets in better shape to withstand market turbulence

Following recent market volatility, Scottish Widows Investment Partnership (SWIP) remains confident that the outlook for Global Emerging Markets (GEM) remains positive on a three year horizon. According to SWIP, countries are now in much better fiscal shape to withstand market and economic turbulence.

SWIP’s, long-term, view on emerging markets is also fuelled by two themes: infrastructure and consumer demand. With fund managers’ ability to identify well run companies which are exposed to these themes, SWIP remains confident in its outlook for emerging markets and the stocks in its portfolio.

Andrew Ness, Investment Director, SWIP Global Emerging Market Equities comments: “In most cases we are seeing global emerging market countries in a much stronger fiscal position with more sensible monetary policies, which has resulted in current account surpluses and stronger currencies. This means countries are much more robust than a decade ago.

“This healthy level of government cash is leading to increased spending on infrastructure. It is estimated that around $1trillion will be spent on improving infrastructure in emerging countries over the next three years.”

SWIP estimates that $795 billion will be spent on improving infrastructure out of the BRIC countries alone, on urbanisation and general upgrading. On the consumer side, domestic demand growth is taking over from export led growth as wealth is being generated across the board in GEM countries.

Andrew continues: “Consumer spending power is getting stronger in emerging market countries as wages rise, people move to cities and there is an increased demand for housing, mortgages and credit. We are playing this through the banking and telecoms sectors, picking up stocks in the weak market environment.”

SWIP’s outlook for GEM is based on a three year horizon and, over the short term, further periods of volatility are expected as there is likely to be further fall out from banks announcing exposure to sub-prime credit. However, SWIP is ideally positioned to take advantage of the current economic and market conditions with its bottom-up approach to stock picking, which forecasts a company’s prospects over the next three to five years.