Markets will calm as China fears abate, Aberdeen manager says

Devan Kaloo, manager of the Aberdeen Emerging Markets fund, is optimistic about the year ahead, believing China will engineer a gradual economic slowdown rather than suffer the dreaded 'hard landing'.

Kaloo adds Turkish and Thai banks

Aberdeen Emerging Markets manager Devan Kaloo has sold consumer goods stocks to buy more financials, after the fund toughed out a ‘relatively difficult’ 2011 amid a sea of worries over the global economy.

Speaking in a conference call with investors on 19 January, Kaloo said that he had introduced two new banks to the £2.6 billion portfolio, a Citywire Selection pick – Turkey’s Garanti Bank and Thailand’s Siam Commercial Bank – as he ‘saw value appear’. The manager said he also added to existing holdings, which had been weak throughout the year.

The moves were funded by taking profits in some of his consumer staples and consumer discretionary stocks, and took his position in financials to 32% of the portfolio, up from 29.5% a year earlier.

He noted that the sector, however, had proved the biggest drag on the fund over the fourth quarter – in particular banks in Turkey and India, where the local currencies suffered sharp falls. Nonetheless, the fund returned 4.97% over the period, slightly outperforming its benchmark, the MSCI Emerging Markets stock index, which gained 4.7%.

Adding to energy

Kaloo pointed out that he had also added ‘quite significantly’ to his energy positions, and cited gains by one such stock, Tenaris, an Argentinian steel pipe maker for the energy industry, as a driver of performance.

In regard to the fund’s geographic breakdown, the manager said that Brazil was now its fifth largest overweight, as he had added to positions in stocks such as energy giant Petrobas and miner Vale that had been underperformers.

Global emerging markets suffered over the year, he said, as jittery investors yanked away their cash at rates not seen since 2008 on concerns over rising inflation, a ‘hard landing’ in China and global growth.

Soft landing anticipated in China

But such concerns should abate somewhat in 2012, due to falling consumer prices, the success of China in engineering an economic slowdown, and the strong balance sheets of the world’s fast-growing nations, Kaloo said.

‘They have the wherewithal, in the face of a global economic slowdown, to spend money to try and keep their economies ticking over, again, in marked contrast perhaps to what is happening in developed countries,’ he told investors.

Kaloo warned, though, that emerging markets would remain highly dependent on the vagaries of investors abroad, due to their lack of domestic buyers and liquidity, in what was still a bleak global outlook.

‘Emerging markets... are driven by the foreigner; and the foreigner is somewhat driven by their risk perceptions of the world,’ he said. ‘And it’s hard to see how emerging markets would make any significant headway, when we still have outstanding concerns about the eurozone and indeed US economic growth.’