Capitalizing on the Opportunity in Emerging Markets

Transcription

1 Capitalizing on the Opportunity in Emerging Markets Philippe Langham, Head, Emerging Markets Equities & Senior Portfolio Manager January 2017 RBC Global Asset Management (UK) Ltd.

2 Rising Importance of Emerging Markets EM's Share of World GDP EM's Share of World GDP Growth 60 % IMF Forecast Note: EM refers to Emerging Markets. PPP-based nominal GDP and 5-year average GDP growth used in calculations. Source: MSCI, IMF. Data as at November

3 OECD vs EM GDP per Capita $50 $45 GDP per capita (USD 000s) EM convergence really started in early 1990s 30x $40 25x $35 $30 OECD vs. EM (ratio, RHS) OECD GDP per capita 20x $25 15x $20 $15 $10 EM GDP per capita 10x 5x $5 $0 0x Source: Haver Analytics, Goldman Sachs. Data as at April

4 Investment Team Centralised, Research-Focused Research RBC EM Equity Investment Team Investment Support Global Sector Analysts Philippe Langham Head of Emerging Markets Equity 24 Years of Experience Laurence Bensafi Deputy Head of Emerging Markets Equity 15 Years of Experience Trading Asian Equity Team Guido Giammattei Head of Research, Portfolio Manager Taiwan & Malaysia 18 Years of Experience Veronique Erb Portfolio Manager China & Korea 16 Years of Experience Operations Quantitative Research Zeena Dahdaleh Portfolio Manager EEMEA, S.E. Asia, and Frontier Markets 9 Years of Experience Richard Farrell Portfolio Manager India and Russia 9 Years of Experience Risk & Compliance Economics, Technical & Strategy Mustafa Boulhabel Associate Portfolio Manager Latin America 7 Years of Experience Christoffer Enemaerke Associate Portfolio Manager China 6 Years of Experience Client Management EM Fixed Income Nicole Vettise Institutional Portfolio Manager 23 Years of Experience Stephen Pitts Portfolio Specialist 21 Years of Experience IPM 4

5 Emerging Markets Equities Benefits of active versus passive investing Less efficient markets than developed equities Portfolios can be selective Good managers have shown consistency in outperformance Avoid countries and stocks with bad corporate governance ETFs do not always track the index due to sampling Broader opportunity set ETFs have typically underperformed the benchmark and have higher volatility Access to frontier markets and smaller companies 5

6 Emerging Markets Outlook Energy & Materials sectors (% mkt cap) Source: Thompson Reuters, Credit Suisse Research. December

7 Developing and OECD Countries Real GDP + Differential 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% E 2017E Developing Countries All OECD Countries Growth Difference Source: World Bank as at

8 Emerging Markets Outlook EM has provided higher earnings growth than DM over time Source: Factset, December

9 Valuations attractive in Emerging Markets MSCI EM Absolute and Relative PB MSCI EM Historical PB MSCI Historical EM/DM PB % % % 80.0% 60.0% 40.0% 20.0% % 9 Dec'99 Nov'00 Oct'01 Sep'02 Aug'03 Jul'04 Jun'05 May'06 Apr'07 Mar'08 Feb'09 Jan'10 Dec'10 Nov'11 Oct'12 Sep'13 Aug'14 Jul'15 Jun'16 Dec'99 Nov'00 Oct'01 Sep'02 Aug'03 Jul'04 Jun'05 May'06 Apr'07 Mar'08 Feb'09 Jan'10 Dec'10 Nov'11 Oct'12 Sep'13 Aug'14 Jul'15 Jun'16 MSCI EM Price/Book 2 Year Mean 2 Year Mean + 1SD 2 Year Mean - 1SD EM/DM PB 2 Year Mean 2 Year Mean + 1SD 2 Year Mean - 1SD Source: Bloomberg as of December 2016

10 Relative EM Growth and performance Long-term EM/DM Relative Performance and EM/DM GDP Growth Differential EM vs. DM (Relative Equity Performance Index - LHS) Bull Cycle Bear Cycle Bull Cycle Bear Cycle 14% 12% 10% 8% Bull Cycle Bear Cycle 6% 200 4% EM vs. DM Growth Differential (3yr avg, RHS) 2% 0% Source: Factset, Datastream, Bloomberg, Goldman Sachs Global investment Research. Data as at

11 Emerging Markets Outlook Ongoing reforms China Aggressive plans for privatization and reducing corruption India Widespread reforms to unlock bottlenecks Indonesia New Government will focus on Energy and Infrastructure Philippines Targeting Infrastructure Korea Pursuing Chaebol reform Taiwan Finalizing services pact with China Mexico Reforms at full speed: Labour, Fiscal and Energy South Africa Incremental positive adjustments Brazil Potential new government Chile Better, more accessible education 11

12 China Foreign Exchange Reserves 120 (USDbn) (USDtn) Jan 07Jul 07Jan 08Jul 08Jan 09Jul 09Jan 10Jul 10Jan 11Jul 11Jan 12Jul 12Jan 13Jul 13Jan 14Jul 14Jan 15Jul 15Jan 16Jul 16 Monthly change Outstanding (RHS) 1.0 Source: PBOC as at December

13 Decomposition of Economic Growth Drivers by Expenditure in China 16.0% 14.0% 12.0% 10.0% 8.4% 8.3% 9.1% 10.0% 10.1% 11.4% 12.7% 14.2% 9.6% 9.2% 10.6% 9.5% 8.0% 7.8% 7.7% 7.3% 6.9% 6.0% 4.0% 2.0% 0.0% -2.0% % -6.0% Consumption % Gross Capital formation % Source: Bloomberg, National Bureau of Statistics of China. Data as at December

14 EM currencies Emerging Markets Currencies Performance 5 Years EM ex-china FX PPP and Global Export Market Share % 15% % 14% % 90-50% 13% 80-55% 12% 70-60% 11% J.P. Morgan Emerging Market Currency Index (EMCI) Fixing -65% GEM currency valuation (ex China) vs US on PPP GEM export market share, ex China, rhs -70% % 9% Source: Bloomberg as at Source: Thomson Reuters Datastream, Credit Suisse Research. Data as at

15 Emerging Markets Outlook EM Currencies 5-Year Valuation Change South African Rand Mexican Peso Colombian Peso Russian Ruble Turkish Lira Brazilian Real Malaysian Ringgit Polish Zloty Hungarian Forint Czech Koruna Chilean Peso Indonesian Rupiah Peruvian Sol Indian Rupee Thai Baht Taiwanese Dollar UAE Dirham Philippine Peso South Korean Won Chinese Renminbi BIS Real Effective Exchange Rate Index Oct'11 Oct'16 Source: Bloomberg as at 25th October 2011 and 25th October Big Mac PPP Index Malaysian Ringgit South African Rand Russian Ruble Indonesian Rupiah Polish Zloty Colombian Peso Mexican Peso Chinese Renminbi Czech Koruna Turkish Lira Thai Baht Hungarian Forint Chilean Peso Philippine Peso South Korean Won Brazilian Real Oct'11 Oct'16 Source: Bloomberg as at 25th October 2011 and 25th October

16 Disclosures The information contained in this report has been compiled by RBC Global Asset Management Inc. (RBC GAM) from sources believed by it to be reliable, but no representations or warranty, express or implied, are made by RBC GAM, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report constitute RBC GAM s judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. RBC Funds and PH&N Funds are offered by RBC GAM and distributed through authorized dealers. A NOTE ON FORWARD-LOOKING STATEMENTS This report may contain forward-looking statements The words may, could, should, would, suspect, outlook, believe, plan, anticipate, estimate, expect, intend, forecast, objective and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance. Forward-looking statements involve inherent risks and uncertainties so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement. These factors include, but are not limited to, general economic, political and market factors in Canada, the United States and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological changes, changes in laws and regulations, judicial or regulatory judgments, legal proceedings and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. All opinions contained in forward-looking statements are subject to change without notice and are provided in good faith but without legal responsibility. / Trademark(s) of Royal Bank of Canada. Used under licence. RBC Global Asset Management Inc.,