Nick Price, Fidelity Funds Emerging Markets Fund: “With the recent appointment of the new Chinese executive committee, and the significant influence that the direction of the Chinese economy has on its trading counterparties, 2013 is likely to be characterised by much focus on the approach adopted by the Chinese government.
“We hope to see increased acceptance that excess capacity needs to be rationalised in order to improve productivity and long term economic viability within the Chinese industrial sector. Accordingly, any such change of emphasis will have significant ramifications for economies reliant on the export of industrial commodities.
“Elsewhere, subdued demand from the developed world, with their excessive debt burdens and inferior economic growth rates, will weigh on economies reliant on the export of investment goods.
“It is possible that, barring any unforeseen political shocks, reduced investment demand coupled with new capacity coming online may result in downward pressure on commodity prices. With much of the emerging world spending a large proportion of their income on food and energy, limited inflationary pressures will be welcomed by many developing economies.
“In this more subdued global environment, we continue to focus our efforts on identifying businesses that can maintain a strong competitive position in their local markets, and which benefit from structurally positive tailwinds such as population growth, rising levels of disposable income, and increasingly sophisticated consumers who aspire to join the world’s middle classes.”
Angel Ortiz, Manager of Fidelity Latin America Fund: “Like its geography, the outlook for Latin America reflects a land of contrasts. On the one hand, Brazilian unemployment and consumption remains strong. On the other, its manufacturing sector is depressed and its commodity related industries are set to struggle given declining Chinese demand. Valuations are slightly above history, corporate profitability remains depressed and risks from government intervention are omnipresent.
“The previous Brazilian presidential administration successfully focused on growing the spending power of the poor and the middle class, creating an environment where they could access credit fairly easily, which lifted the country’s economic output. At the same time, Brazil moved from a debtor to a creditor to the rest of the world, financed by massive US dollar inflows from the commodity sectors. Today, we are witnessing a situation where leverage on families has increased sharply, which the new government will have to resolve.
“In contrast, Brazil’s northerly neighbor, Mexico is a much stronger story today. The newly installed government’s reform agenda could boost growth in coming years, macro fundamentals are solid and the market is seen as defensive overall. Unlike many other developing markets, Mexico’s business environment is structured in favour of shareholders with high barriers to entry in the form of large oligopolies, which is a big positive for equity investors. Mexican valuations are indeed rich in some cases, but that is consistent with the current reality in emerging markets where quality comes at a price whereas the more indebted, structurally challenged companies are trading at record low valuations. Within Mexico, we have key positions in the banking, telecoms and industrial sectors.
“Overall, we have a clear preference for domestic consumption ideas, which are attractive structural growth stories, such as investing in those companies benefiting from the real wage gains across the region.
“In the staples sector, we believe beer company Ambev is a clear winner. In the discretionary names, we like companies like department store owner Lojas Renner, which is a best-in-class operator in a fragmented, largely unsophisticated apparel market, positioned to gain share as consumers have traded up.
“All in all, we expect a stuttering, yet positive year for Latin American equities. We believe the challenges, particularly in Brazil’s case, are certainly not insurmountable and we have already seen the government respond quickly to slower economic activity by implementing several initiatives. While some actions are fairly short-term in nature, we are encouraged by President Rouseff’s moves to cut the cost of doing business in Brazil. We believe it is in infrastructure where Brazil’s proverbial ‘low hanging fruit’ for future growth can be found. Infrastructure excluding housing is still just a little over 1% of the country’s economy and it is in this area that Brazil’s near-term investment outlook will be shaped.”
Teera Chanpongsang, Manager of Fidelity Emerging Asia Fund: “2013 promises to be an exciting time for Emerging Asia. There are many potential positive catalysts for the region: the outlining of policies from the new China leadership; the impact of India reforms; more ASEAN integration. On top of this we also have elections in Malaysia, further opening up of Frontier markets like Myanmar and continued post-flood reconstruction in Thailand.
“These short-term injections can add additional fuel to the long-term growth drivers in the region, which will continue unabated. I believe that concerns for economic growth across the region, especially China, are at their lows and, more importantly, companies will continue to grow. This, in turn, will improve investor sentiment towards the region. Many emerging Asia markets have witnessed over 20% growth so far this year, and while I cannot predict market returns, I think that the companies will be in better shape next year than they are this year. This will hold them in good stead for the year ahead.”