Emerging markets in robust shape to weather 2009

Despite the severe market declines of recent months, Aberdeen believes emerging economies around the world are well placed to withstand the ongoing financial turmoil.

While developed economies are suffering from structural imbalances caused by high levels of government, company and consumer debt, emerging markets are facing a cyclical slowdown due to Western de-leveraging. Meanwhile, emerging economies are generally in better shape relative to developed peers. The ratio of government debt to GDP is lower in most cases among emerging countries compared to the Eurozone, Japan, UK and US, and the fiscal balances, current accounts and foreign exchange reserves of emerging economies are also relatively healthy. Furthermore, economic growth across emerging markets, although slowing, is still expected to exceed growth in developed countries.

Despite the superior economic fundamentals of developing countries, emerging stock markets fell much further than those of the developed world in 2008, as foreign equity investors took profits after a long bull run. These outflows have left many companies trading on attractive valuations, providing the opportunity for Aberdeen's emerging market equity team to add to its holdings. As ever, it is crucial to focus on those companies with the strength of management, balance sheet and business model to weather adverse economic cycles.

As long-term investors with a bottom-up stock picking style, our positioning remains generally unchanged, and is characterised by significant deviations from the MSCI Emerging Markets Index.

We continue to favour domestically focused companies, seeing them as a way to capitalise on the rise of the middle class in emerging markets. Meanwhile, we are underweight materials and industrials, where businesses tend to be cyclical and do not fit in with our long-term, steady growth investment style.

Joanne Irvine, Head of Emerging markets ex Asia, comments: "Many emerging market companies are likely to suffer in the months ahead, particularly those focused on export markets and/or with high levels of debt. Aberdeen will continue to focus on companies with strong business models, robust balance sheets and experienced management, many of which have weathered previous downturns and are therefore well positioned for current market conditions.

"We remain relatively sanguine about the outlook for emerging economies, given that they are in relatively good shape compared with their highly leveraged mature market counterparts.

Conditions in all markets will continue to be challenging, but disciplined stock pickers who invest in good value quality companies should do well over the long term."