Mark Dampier: Emerging markets a risk worth taking

The Analyst

This week I'm going to start by beating you over the head with facts. Emerging markets represent approximately 75 per cent of the global land mass and 80 per cent of its population. One in every five people in the world is Chinese and one in every six is Indian.

Emerging markets have over 90 per cent of the world's oil and gas reserves, 70 per cent of the coal and more than 60 per cent of copper, nickel and iron ore. Finally (if you are still with me) the combined imports to Brazil, Russia, India and China during the course of 2009 are estimated to surpass the US for the first time, signalling a trend of reducing the global economy's dependence on the US consumer. The combined investment potential of the sector is immense.

Emerging markets has been a favourite area of mine for a long time. In fact, when my son was born in 1990, I started a monthly savings plan in a leading emerging markets fund, which I am still doing today. I believe the current financial crisis has probably accelerated the transfer of wealth from West to East and, although they can be volatile, these economies should continue to prosper over the next 20 years or more.

The most obvious way to access these opportunities is through a fund such as Lazard Emerging Markets. The fund manager, James Donald, an American, remains bullish about the sector over the medium to long term. However, on a very short-term view, he is wary considering that emerging markets have risen a lot recently and could be due for a brief pull back – this seems like a sensible view to me.

Some readers will have noticed the Chinese market has made strong gains recently and the Russian market has been especially strong, roughly doubling in the last few months. This, of course, needs to be put in context – Russia had previously fallen around 80 per cent from its peak last year, so anyone investing at the top of the market still has sizeable losses.

This demonstrates the risk, volatility and potential reward of investing in this region. It takes a steady hand to invest successfully here.

The Lazard team approaches emerging markets from what is known as a 'bottom-up' view. In other words, they tend to seek out attractively valued companies with good potential growth first, and worry about country allocation afterwards.

The recent rally in emerging markets has been linked to a rise in commodity prices, indeed the two are pretty closely correlated. Remember that if you already have some commodity funds in your portfolio, you will effectively have some emerging market exposure by default.

The Lazard team has had a big overweight position in Russia, where they felt share valuations were just incredibly low. Even after rising so strongly they still look good long-term value. Interestingly, one area where the fund is currently underweight is China, with only one holding in the fund that represents 0.8 per cent of the portfolio. The reason for this is because Mr Donald cannot find compelling valuations at present and very few companies are sensitive to profitability, instead being more focused on gaining market share. He believes most of the long-term potential in these stocks is already being reflected in the price so there isn't as much profit to be had at the moment.

It is important that investors realise that emerging markets are higher risk and can be extremely volatile over the short term. However, those who can take a longer time horizons (particularly young people contributing to a personal pension) should be making contributions on a regular basis.

Saving monthly can help smooth out the fluctuations in the market and you won't need to worry every time the markets take a brief lurch downwards. In fact, this will often work in your favour and allow you to buy more units cheaply. Lazard has done a good job so far with its Emerging Markets fund and it is certainly one worth looking at.

Mark Dampier is the head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more information about the funds included in this column, visit www.h-l.co.uk/independent

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

    £16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    Day In a Page

    The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

    They fled war in Syria...

    ...only to get stuck and sidetracked in Hungary
    From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

    Title sequences: From The Prisoner to Mad Men

    Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
    Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

    Giorgio Armani Beauty's foundations

    Sumptuous fabrics meet luscious cosmetics for this elegant look
    From stowaways to Operation Stack: Life in a transcontinental lorry cab

    Life from the inside of a trucker's cab

    From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
    Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

    Kelis interview

    The singer and sauce-maker on cooking for Pharrell
    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

    Charlie Austin: ‘If the move is not right, I’m not going’

    After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea