The Asian market will protect EM investors from the end of the commodity cycle as regions like Latin American and Eastern Europe’s will be worst hit, Thomas de Saint-Seine of RAM Active Investments has said.
Almost half of the Geneva-based manager’s $2.4 billion RAM SF Emerging Market Equity fund, which he co-manages with Maxime Botti and Emmanuel Hauptmann, is focused on Asia and recent changes in the region have caused ripples far beyond its borders.
‘The Chinese slowdown has impacted the commodity producers, like Brazil and Russia which are also feeling pressure from other fronts at the moment,’ De Saint-Seine told Citywire Global.
Over the past five years the RAM AI trio are in third place out of 194 managers in the GEM equity sector having returned 73.3% through the combined returns of their $2.4 billion fund and the smaller RAM SF Emerging Markets Core Equities fund.
Betting big on two markets
De Saint-Seine said, while other emerging market countries are benefiting from the drop in commodities, the two biggest allocations within the larger fund remain Taiwan, its biggest overweight at 17.1% (down from 20.9% at end of September), and China at 17.1% (up from 15.8% last month).
‘Over the last few years we have been underweighting China but now were are in line with the benchmark and increased this exposure due to attractive valuations. In Q3 we were overweight Taiwan, mainly through a bet on IT and we have been reduced it in favour of China, but while still remaining overweight.’
De Saint-Seine sold some of his IT position in Taiwan and made a return to Chinese financials, buying names like the Agricultural Bank of China.
‘In terms of the provisions given by these banks they are above those of the "official" non-performing loans and we also know that the Chinese government has strong reserves to back them,’ he added.
He is also more optimistic on the outlook for Asia and China, with De Saint-Seine saying that the latter has the means to meet its targets and fulfill its long-term ambitions of becoming a consumer driven market.
‘When we look at this Asian block, we believe growth will remain robust in 2015 and there are strong drivers here compared to the Latin American and Eastern European growth levels which are really dominated by commodity prices. In the short-term they will suffer from this phenomenon.’
Brazil remains a strong underweight in his fund due to worsening stock fundamentals and low growth forecast levels and De Saint-Seine also recently lowered his Russian exposure.
'From a valuation standpoint there are still attractive stocks in Russia but there is also still a lot of volatility. We decreased our exposure from overweight to neutral but as you can't be overweight this market anymore in this environment.'
Long-term he is also interested in India but is currently underweight the country as he sees a lot of the positive news following Narendra Modi's election is now priced into the market. 'When you compare India to China, China is more attractively valued.'
Focusing solely on the RAM SF Emerging Market Equity fund, over the five years to the end of September 2014, it has returned 77.62% while its MSCI EM TR benchmark has risen 26.15% in US dollar terms.