Europe investors can benefit from the growth of emerging markets across the world and need not fear a double dip, experts believe

News - Trusts

Written by Ray Clancy

Friday, 29 October 2010 09:25

Europe is set to benefit from the growth of emerging markets across the world and companies outsourcing their non-core activities will provide opportunities for European focused portfolios, it is claimed.

Henderson EuroTrust, which invests in a portfolio of large and medium sized companies across Europe, is highlighting a rising trend in outsourcing and an integral relationship between Europe and the world’s emerging markets as two key factors driving the positive returns to be had from portfolios concentrating on European holdings.

‘The rising trend of companies outsourcing their non-core activities offers exciting opportunities for holdings in European focused portfolios. Europe is able to benefit from the growth of Emerging Markets across the world,’ said Tim Stevenson, fund manager of Henderson EuroTrust.

Emerging markets remain strong, according to Guido Stiel, Asian equities expert and co-fund manager of the Allianz RCM BRIC Equity fund, who has just returned from a trip to China.

‘Despite the prevailing mood of scepticism about continued growth in China, our view remains primarily positive, with Chinese gross domestic product (GDP) growth rates continuing to be relatively strong. Indeed, Chinese GDP in the first three quarters of this year peaked at 12% and in the fourth quarter we are expecting this to slow down to about 8 to 9%, but overall, we expect Chinese GDP growth for this year to remain robust at around 10%,’ he said.

He also is not too worried about talk of a real estate bubble in China. ‘Property prices in the major cities of Beijing and Shanghai are high but in relative terms no higher than in New York or London. It is important to note that great potential for growth exists in the smaller second and third tier cities where property prices are significantly lower than in Beijing and Shanghai, a fact which is often overlooked,’ he explained.

‘The tightening measures that we saw from the Chinese government, and which have concerned investors this year, were targeting property speculators rather than first time buyers or those looking to upgrade their property. Also, don’t forget that one third of Chinese property buyers pay 100% of the down payment of a property, another third pay 50% and the remaining pay 30 to 33%. Compare this to the west where only 20 to 30% of the down payment is paid, and we can see immediately that there is far less property related debt in China than in developed economies such as the US and UK. When people talk of a bubble, they associate it with debt, and we are not seeing a debt bubble here in China,’ he added.

He sees a similar pattern developing. ‘In Brazil, where we continue to look for companies which we believe will benefit from the domestic demand story, for example, bank and consumer stocks. The growing middle class and the healthy pipeline of Initial Public Offerings in Brazil are likely to continue to be key factors supporting companies which are focused on the domestic market,’ he explained.

New opportunities are likely to remain strong in India from steadily expanding consumer demand, as well as the drive to develop infrastructure and the increased importance of outsourcing in order to cut costs in developed countries.

‘The bulk of the world’s greatest debts are located primarily in the Western world, not in the emerging markets and bearing this in mind, I believe that investors can expect another positive overall year in 2011 with far higher rates of economic growth than in the West,’ he concluded.