* Changing consumer habits driving long-term views
* China slowdown could hit traditional EM stocks
* Frontier markets like Bangladesh, Sri Lanka attractive
By Martin de Sa'Pinto
ZURICH, Jan 26 (Reuters) - Brewers, tobacco producers and casino operators could offer the best exposure to emerging markets growth as local consumers begin to mimic counterparts in developed markets, fund manager Rajiv Jain said.
Indian and Brazilian stocks make up half Jain's portfolio, but he also likes less fashionable markets such as Indonesia. He is underweight Chinese stocks, which he said are richly valued.
"We're looking for long and sustainable trends. We want high quality growth, and like quality multinationals with emerging markets exposure which tend to pay high dividends," said Jain, who runs an emerging markets fund for Swiss bank Vontobel (VONN.S).
The tobacco industry, typically seen as defensive, offers two of his top growth picks.
"Souza Cruz (CRUZ3.SA) is Brazil's largest tobacco company with a 70 percent market share," Jain told Reuters.
"In the last 20 years, earnings rose when inflation was higher, showing they have pricing power. They are not only a defensive, they are growing," said Jain, who manages $11.2 billion in equities funds.
"And Indian tobacco company ITC (ITC.BO) has grown at an 18-20 percent clip and outgrown average Indian corporate earnings over the last decade."
But investors betting commodities and energy stocks will benefit most from productivity and prosperity growth in China and India risk heavy losses if inflation kicks in, Jain said.
"China is the world's biggest commodities consumer. If they tighten interest rates aggressively to check inflation, we could see a strong dip in commodities prices," said Jain.
The euro zone debt crisis and the weak dollar and euro are also putting a brake on emerging markets exports to the West, making long-term performers harder to find, said Jain.
He said his fund underweights energy and basic materials, since the United States, Japan and Europe remain the main consumers, despite the rise of emerging markets demand.
source - in.reuters.com
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