Fiera Capital looks to China as 'natural investment' post-pandemic
Avoids countries with existing difficulties
China is the "natural investment" in emerging markets owing to its capacity to bounce back from the economic impact of the coronavirus pandemic, while allocations to countries that were already struggling before the crisis are best avoided, according to European CIO and senior portfolio manager at Fiera Capital Dominic Bokor Ingram.
Bokor Ingram, who is responsible for overseeing the firm's emerging markets mandates, said the firm is analysing "how much economic destruction" EM economies will see and those most capable of "getting their economy going again" when the virus is contained, which has led to a preference for Asian equities.
Is Vietnam ready to fill China's supply chain gaps?
From the start of the year to April, the regional allocation to Pacific Basin equities has grown from 54.1% to 65.1% of Fiera's Magna Emerging Markets strategy, according to FE fundinfo.
He explained: "In Asia, there was the fiscal room and the monetary room to actually provide some stimulus and some safety net.
"China is particularly well placed, whether they have been truthful about the [economic and health] statistics or not. The economy got back on track quicker than anyone else.
"If you look at pollution figures of traffic numbers, which can be tracked independent of the National Bureau of Statistics of China, it is clear that China is getting back on its feet. It is the natural place to look for investments now."
Bokor Ingram also noted the relative value available in Vietnam, which "could recover quicker and stronger" than regional counterparts.
He explained that Fiera had gone into the crisis with an overweight allocation to China, but the firm has been "very actively looking at Vietnam" because "it seems to be one of the countries that's going to be one of the least impacted with the best chance of a smooth exit".
Bokor Ingram said: "The key factor through all of this is not trying to guess what is going to happen, because no one knows what is going to happen.
"It is better to look at the institutions within economies, to see how they cope with what is happening, how much damage is potentially being done, and what the trade-offs are between health and wealth.
"Every country has a decision to make in terms of how much economic destruction they bear before they need to get the economy going again."
In contrast, Fiera is cautious on countries "that were struggling before they went into lockdown", Bokor Ingram said.
Specifically, he noted South Africa, which has just been subject to a credit downgrade, in addition to Turkey, Brazil, Mexico and Argentina.
What now with China 'open for business' again?
Bokor Ingram explained: "Turkey has seen some economic destruction already, Brazil just came out of quite a long recession and Mexico has political issues, while Argentina is almost certainly going into a debt default.
"These are countries that were pretty close to the edge and almost certainly heading into recession anyway. [The pandemic] has made things a little bit more difficult for them."
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