* Emerging markets offer higher GDP growth, consumer
* Asia and Latam are hot, Eastern Europe and Africa less so
* Consumer goods, infrastructure, debt and equity seen
By Andrea Hopkins
TORONTO, Feb 26 With only tepid growth expected
in North America and Western Europe in 2013, Canadian asset
managers say the best opportunity for growth comes from emerging
markets, where a burgeoning middle class is hungry for consumer
goods and improved infrastructure.
Once viewed as higher risk, emerging economies from China to
India and Brazil to Mexico are in the spotlight as investors
face the prospect of mediocre returns from both stocks and bonds
in the developed world in 2013.
While a slowdown in China in 2012 may have left some fearing
a trend, growth across much of Asia and Latin America promises
to be several percentage points higher than the 2-to-3 percent
growth expected in developed economies, without the risk of
Europe's debt crisis or the U.S. budget showdown.
"In the emerging markets you have a consumer that is not
going anywhere, and not about to fall asleep. We think this is a
story for 2013, 2014, 2015, even beyond this decade. We truly
believe the emerging markets are going to get us, the developed
world, out of our funk," said Serge Pepin, head of investment
strategy at BMO Global Asset Management.
While austerity is the flavor of the decade in Europe and
the prospect of higher taxes or spending cuts may cut into
America's nascent economic recovery, the growing wealth and
appetite of consumers in China, India, South Korea, Indonesia,
Chile, Brazil and Mexico promise growth in sectors as broad as
consumer goods, technology, gaming, infrastructure and banking.
"The consumer is a big theme for us, consumerism if you
will," said Pepin. "You have this hungry consumer who wants the
same products that you and I have, and their wealth is
increasing and their potential for wealth is increasing. It's an
emerging middle class that is hungry."
While all of Canada's big banks and asset managers offer
mutual funds designed to leverage growth in emerging markets,
Mississauga, Ontario's Excel Funds Management Inc has
specialized in the market since its chief executive, Bhim
Asdhir, founded the company 15 years ago.
His motivation, and advice to investors, is simple. The
developing world offers three "major shifts" that boost returns
versus the developed world.
"The developed world is aging, and emerging markets have
young populations. That means a productive population. The
second is debt-to-GDP in the developed world is about 100
percent, while in emerging markets it is about 35 percent. And
most of the emerging markets ... are growing about 3 percent
faster than the developed world," Asdhir said.
Canadian fund managers offer increasing choices with
exposure to both the equity of emerging markets, which can
include major global names such as South Korea's LG Electronics
Inc or Samsung Electronics Co Ltd, as
well as the debt, in the form of both corporate and sovereign
But Asdhir said there is also less-obvious way to leverage
the consumer appetite of the emerging market: by investing in
global companies deriving a big portion of revenue from emerging
markets. Colgate-Palmolive Co, Unilever PLC and
Yum! Brands Inc all leap to mind, Asdhir said.
He also dismisses the suggestion that the emerging markets
offer more risk than developed markets, given the entrenched
problems facing developed nations in Europe and North America,
where massive debt overhangs will weigh on growth for years to
That said, BMO's Pepin cautions that not all emerging
markets are created equal, and he separates them into four
blocks: Asia and Latin America, where growth prospects and
corporate governance has made great strides, and Eastern Europe
and Africa or the Middle East, where "challenges" remain.
BMO is staying away from a few areas in particular, Pepin
said, including Eastern Europe, which is hindered by the
European debt problem, as well as Argentina, which has political
issues that has pushed it beyond developing status to
He also likes Southern Africa for its resource
opportunities, more than North Africa, where political strife
has clouded investment opportunities.
Still, he said every investor should have a solid chunk of
their portfolio in emerging markets, from about five to 15
percent, depending on the investor and investment horizon.
"When you look at risk versus return, emerging markets are
high-return, low-risk propositions. If you ask anybody where
emerging markets are going to be five years from now, people
will tell you that they are going to be stronger and bigger
because the underlying demand," said Pepin.
"But if we wait for five years, we will miss the boat."