Talking Strategies: In the below video, Jupiter fund managers discuss how they avoid political noise and macro sentiment swings when investing in emerging markets, emerging market debt, Asia and Japan.
Political news headlines continued to impact asset classes like emerging markets, emerging market debt and Asian equities negatively in 2018. For many fund managers it is difficult to avoid issues like the ‘Trump effect' when investing in the region.
Yet it is also fair to say that whilst some investors may sell-out of these regions on the back of ongoing wider, macro issues, in most cases geopolitical news headlines tend to impact asset class sentiment rather than underlying company fundamentals. Nowhere is this more prevalent than in emerging markets and Asia.
Ross Teverson, Head of Strategy, Emerging Markets and Fund Manager of the Jupiter Global Emerging Markets Fund, says: "A number of times we see an increase in risk aversion on the back of something he has said, and an almost indiscriminate sell-off in certain countries or markets. We use those moments to hone in on opportunities. To give an example, at the start of 2017 investors were very concerned about NAFTA completely disintegrating on the back of what Trump was saying. Rather than back away from the region, we chose to invest in those stocks whose valuations suddenly became much more attractive. The investments have proven to be profitable as the market has come to realise that earnings delivery for those businesses is largely unaffected by what is happening on the trade front."
That is not to say they are easy to avoid when investing in the region. Alejandro Arevalo, Fund Manager, Fixed Income team and manager of the Jupiter Global Emerging Markets Short Duration Bond SICAV, admits it is extremely difficult to try to diversify away from, or avoid, the Trump effect. "For me, the main problem is to understand what the objective is for Trump administration and this uncertainty creates volatility across all emerging markets," he says. "I think the benefit of that is that it actually creates good entry points, and that is exactly what we have been able to take advantage of."
Jason Pidcock, Head of Strategy, Asian Income and Fund Manager of the Jupiter Asian Income Fund, points out investors in Asia and emerging markets are no strangers to political risk: "I've been doing this for 25 years and political risk has always been something we have simply had to factor in to the effect it could have on share prices and currencies. Really I see political risks within Asia as being something to keep an eye on more than global risks or US-led political risks."