The Brics countries have been grabbing investor attention recently from a macro view as well as earnings growth perspective after falling out of favour two years ago.
BNP Paribas Investment Partners' Guillermo Felices outlines three reasons for being positive on Brics countries; while Prashant Khemka from Goldman Sachs Asset Management talks about the most promising country among Brics.
Brett Diment from Aberdeen Asset Management has also pointed out why he has scaled back Russian local currency positions despite being positive on Russia in general.
Here's a look at what the experts told Citywire Asia.
Brett Diment, Aberdeen Asset Management
Head, global emerging market debt
We see a number of emerging markets countries where economic situations are picking up. For instance, Brazil needs to be moving out of recession and it has been a pretty tough four years for the country.
Russia is moving out of recession this year; while in India, there is still a pretty good growth, though the short-term growth will be slowing down. We are positive on Indian domestic bonds and it is a high-yielding market with pretty good fundamentals. In terms of China, we are critically pessimistic about China.
Chinese growth is a key driver, where we see such growth being underpinned by rising domestic consumption, so fairly we have some concerns about capital flight from China but firmly constructive on macro outlook.
We have scaled back Russian local currency positions very recently, despite we still find the country attractive, because our sense is that the Russian ruble is going to appreciate much further than what it is now. In order to build up its capital reserves, the central bank is buying dollars and selling Ruble for rebuilding its reserves. That’s why we have cut back our positions on Russia very recently.
Prashant Khemka, Goldman Sachs Asset Management
Managing director, CIO of global emerging markets equity
Among the four countries of Brics, India at this time has the most promising outlook, particularly because of the nine years of fairly sluggish single digit earnings growth, we do expect earnings growth to accelerate going forward. All the efforts that the government is making or has made over the last three years and continuous to make towards improving the business climate is slowly but certainly improving the sentiment in both consumer as well as business in India.
China has faced a more challenging macro environment as the growth has been slowing down. There is no apparent change in its debt level as well. Investors are mostly preoccupied with the gloomy debt, if they are thinking about investing in China .
Brazil will benefit from the revival of the commodity prices and its business confidence has certainly improved in the last 12 to 15 months. Brazilian business confidence turned around late last year, partly because of the political developments, but coincidently the revival in commodity markets.
From Russia’s economic perspective, I think we have seen the worst behind, also partly tightening the Russia economy, certainly impacted by commodity prices as well, particularly oil, as well as geopolitical element.
Guillermo Felices, BNP Paribas Investment Partners
Senior market strategist, multi-asset solutions
Brics markets are grabbing attention this year for three main reasons.
First, the global macro environment is more supportive for the Brics. The economic recovery in the developed world has surprised to the upside so far this year, especially in the US and Europe.
These recoveries are also being supported by central bank stimulus in the developed world and by monetary and fiscal policy stimulus in China. Even in the US, where the Fed is starting to normalise monetary policy, interest rates remain historically very low. Finally, commodity prices are starting to rise after a sharp retracement in 2014-15.
Second, growth prospects are improving for the Brics. Brazil and Russia, for instance, are starting to bounce from deep recessions. In India, some activity indicators are firming following the slowdown created by the bank note ban. In China, markets have taken comfort from the fact that policy stimulus has supported growth so far.
Finally, valuations and carry considerations are brightening up the Brics again. The recessions in Brazil and Russia led to a deep discounting of asset prices and the resulting build-up of risk premia (e.g. higher interest rates or carry) that investors are now keen to exploit.
High interest rates are also attractive in India. These considerations are less evident in China where investors are following closely the risks associated with the ongoing economic slowdown and the prospect of US trade protectionism.