Manager dismisses fears over global double dip recession

News - Banking

Written by Ray Clancy

Wednesday, 13 October 2010 08:18

Double dip fears are overdone with emerging markets in China and India remaining favourite long term investments, according to financial managers.

‘Certainly there are clear risks to the global economic outlook such as a European sovereign crisis for example, the inability of US growth to gain traction, or escalating tensions between the US and China,’ said Craig Farley, investment manager of the Ashburton Asian Equities Team.

‘But double dips have historically been very rare, and while fears are very elevated today, we think they're likely to be overdone. Equities in particular will benefit from an easing of those fears,’ he explained.

At Ashburton the favourite long term stories remain with Greater China, including Taiwan, and India. ‘They have extremely attractive underlying fundamentals, rapidly growing industries and improved corporate access, which mean that these markets will form an increasingly larger part of investor portfolios over the coming decades. Periods of volatility are to be expected along the way, but anyone willing and able to accommodate a moderate degree of risk appetite needs exposure,’ said Farley.

‘Emerging Market equity valuations are currently approaching, and in some cases exceeding, the levels seen in developed markets. The macroeconomic fundamentals have improved dramatically and moreover trend growth is higher in emerging markets than in developed ones which support the higher valuation,’ he explained.

‘Perhaps most importantly, volatility in emerging markets has been trending lower over the past few years and actually peaked at a lower level than that of developed markets during the recent crisis,’ he continued.

‘Yet global market capitalisation remains small and the majority of global investors have only a fraction of emerging market exposure within their portfolios, despite the fact most major indices generated very little in the way of returns over the past decade. We believe we are witnessing the start of a seismic shift in the other direction,’ he added.