Elections in India, Colombia and Brazil this year could change the way investors look at emerging markets, says Xavier Hovasse of Carmignac.
While the manager of the Carmignac Emerging Discovery fund explains he initially invested in Mexico because of hidden value in a number of sectors, he moved to an overweight not long after voters elected Enrique Peña Nieto as their new president in 2012.
With impending elections in Columbia and India, Hovasse hopes Colombian incumbent president Juan Manuel Santos and Narendra Modi, the prime ministerial candidate for India’s main opposition BJP party, will be voted in.
‘We think it is better to invest in countries in places where elections have happened already, such as Mexico, or where the most likely winner is investor-friendly, as is the case in Colombia and India,’ he said.
Although Colombia’s elections are not until May, he already favours retail banks on the back of extremely low credit ratios failing to top 35% of GDP, alongside infrastructure.
The latter is poised to do well after the state announced a $50 billion investment programme that includes road system enhancements, he said. Here he holds cement companies Cementos Argos and Cemex LatAm.
The fund also holds retail bank Banco Davivienda, Canada-listed Gran Sierra oil company and Almacenes Exito, the Colombian subsidiary of French retailer Casino.
‘The idea is that if there is a liquidity crunch and the markets close, those stocks with good cashflow generation don’t need the markets.’
An eye on India
In India, Hovasse is following similar themes to Colombia. He holds Shree Cements, low income mortgage provider LIC Housing and infrastructure company GMR Infrastructure.
While the currency situation will depend on the election, Hovasse explains Modi’s victory ‘could be very good’ for foreign direct investments’.
He also has a large overweight in the Philippines versus the benchmark, where he sees ‘good growth prospects’.
‘This is a country that has support from remittances of workers abroad who usually work in hard currency countries. The money sent back home means prospects for payment balance is good. This also means prospects for currency are good.’
However, he is negative on Brazil, and says a defeat by incumbent president Dilma Rousseff is ‘the only way out’. ‘Brazil could be rerated if she lost, and business confidence could shoot up,’ he added.
Over the last 12 months, the fund has posted a 9.27% loss versus a 12.6% fall by the MSCI Emerging Market Small and Mid-cap benchmark. Over three years, it was down 5.53%, compared to the benchmark’s 5.75% fall, according to Lipper.