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Published on March 12, 2008

Ever since the government allowed local investors to search for better returns abroad, global emerging-market funds have mushroomed.

As of yesterday, two asset-management firms have launched two such funds: one focusing on emerging markets in general and the other solely on Vietnam.

But with information overload, or the lack thereof, navigating this virgin territory has never been easy.

The deterioration in the economic health of the US, with some pundits seeing stagnation - "Recession in the US and rising commodity prices," wrote John Authers in the Financial Times last weekend - has been a boon to emerging markets.

Major growth-story economies have started emitting worrying signals. Inflation is skyrocketing in China, while wages recently shot up an average of 15 per cent in India.

But rising domestic consumption, "underrepresented" economic strength, better-managed corporations, strong fiscal and current-account balances and reasonable stock valuations indicate that emerging markets are here to stay, Christopher Wong, investment manager at Aberdeen Asset Management, said yesterday.

Aberdeen's Global Emerging Growth Fund, which was launched three years ago, has benefited from this global politico-economic seismic shift.

Soon to have its initial public offering here, Aberdeen's fund picks mostly consumer-based stocks in a position to benefit from growing domestic demand on the part the region's nouveau riche and rising middle class.

"The fund particularly overweighs financial stocks for this reason," Wong said. It is 7.4-per-cent more in the financial sector than Morgan Stanley Capital International's Emerging Markets Index. Consumer staples and discretionary goods make up 21.4 per cent of the portfolio.

Aberdeen has forsaken Russian stocks altogether. It is a transparency and governance issue. The Russian government's move to nationalise key companies is the main turn-off.

"We are not sure if the company is run for the benefit of the national agenda or shareholders," he said.

But Russia's politics have somewhat stabilised since the presidential election, said Julian Mayo of London-based Charlemagne Capital. Newly elected Dmitry Medvedev will usher in highly desired reforms for the private sector. The current state of the Russian economy may not be as spectacular as two years ago, but it has continued to attract more fund monies from around the world, becoming, says Manulife Asset Management CEO Alan Kam, the top geographical allocation among fund mangers worldwide.

But expansion looks set to plateau this year. Credit Suisse's CSFB ROS Index shows growth slackened to 19.3 per cent last year, from 76.6 per cent in 2006.

Ki Nan Tsui

The Nation