Asante and Kaloo clash over GEM banks

First State Investments' Jonathan Asante and Aberdeen’s head of global emerging markets Devan Kaloo have clashed over the growth prospects for GEM banks.

Asante, manager of First State's £1.9bn Global Emerging Markets Leaders fund, is 10% underweight financials as he is pessimistic on the outlook for banks to deliver returns for investors.

He said the vast majority of EM banking stocks are state owned and too highly leveraged, in turn making the sector a "risky investment".

"I am 10% underweight financials and this is due to my negative stance on the banking sector - which I believe only serves politicians and not investors," said Asante.

"There are too many banks across global emerging markets which are government controlled and highly leveraged to fund projects in the company as opposed to preserving wealth for investors.

"For instance, the Banco do Brasil lends a large proportion of its loans to the agriculture sector each year - they are not going to produce any returns for investors."

In stark contrast Kaloo, who heads up Aberdeen's £2.8bn Emerging Markets Equity fund, has been buying into the financial sector and opened a position in Turkish bank Garanti last month.

This is the latest in a series of financial additions to the firm's GEM portfolios that also include stocks from Thailand and Hong Kong.

"We thought Garanti had been sold off excessively, along with the rest of the Turkish banking sector, in the first half of this year," said Kaloo.

"Despite recent concerns about Turkish monetary policy we think this is a well-capitalised and well-regulated sector."

Kaloo and team have also initiated positions in Hong Kong insurer AIA and Thai bank Siam Commercial Bank of late.

Aberdeen's emerging market portfolios hold approximately 30% in financials, of which around 20% is in banks, 4% in real estate and the remainder in insurance companies.