Martin Currie has highlighted earnings growth and a valuation gap relative to developed markets as key components of its optimistic outlook for emerging markets in 2022.
The firm said it expects earnings growth will continue to move upward after the sharp rebound recorded last year and noted that the relative valuation of emerging markets versus developed markets was at or approaching its lowest level in 20 years.
“Going into 2022, the market has already come to terms with rising interest rates, heightened inflation and resurgent COVID-19 infection rates,” said Martin Currie portfolio manager for global emerging market Alastair Reynolds.
“The good news for bottom-up investors is that these factors appear to have been priced in already.”
The consumer discretionary sector is expected to benefit the most from above-market earnings momentum according to the firm with estimated EPS growth of 33 per cent, followed by information technology with 10 to 20 per cent growth and financials with 9 per cent.
“The challenge to us is to identify those companies which are positioned to lead the pack in the year ahead; investing in quality and growth will pay off in the long run and 2022 is no different,” said Mr Reynolds.
“We believe that there are still plenty of reasons to be optimistic about strong growth this year, such as rising technology demand, recovering domestic consumption and a worldwide investment wave in green energy solutions.”
With interest rates and government spending set to return to a more sustainable level as emergency actions from central banks and governments come to an end, Martin Currie said the environment was great for quality companies to execute their strategies for growth.
The firm also highlighted the importance of ESG in emerging markets and said that it “directly translates into alpha”.
“Strong governance and sustainable practices around the environment and social capital help to generate sustainable long-term returns,” Mr Reynolds said.
“Given the macro environment, we expect ESG credentials to be a strong determinant of company performance in the year ahead.”
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
