Jin Zhang, portfolio manager of the Virtus Vontobel Emerging Markets Opportunities Fund, pays close attention to secular shifts that are accelerating or changes that may become permanent in EM countries because of the COVID-19 pandemic.
Key highlights discussed:
- Emerging markets have generally provided less fiscal support for their economies than developed markets and so have accumulated less debt through the COVID-19 downturn. In addition, in the years before the crisis, there was limited excess credit generation among many emerging market countries. In our view, past prudence will be good news for the future of EM, over the long term.
- We believe owning the right businesses is the best way for investors to weather the crisis. And investors can identify strong companies across emerging markets if they look beyond the current disruption. While India has been struggling to contain the virus, certain businesses are recovering as the economy gradually reopens. For instance, Asian Paints, the country’s largest paint company, saw 16% growth in volumes in June. That recovery has carried forward into the third quarter. Similarly, in Latin America, FEMSA, which owns beer brands, a Coca-Cola bottling franchise, and retail chain OXXO, initially suffered due to decreased traffic and falling revenues. Beer production and sales have accelerated, and green shoots are returning.
- The external pressures on China are high and likely to continue, regardless of the U.S. election outcome. However, the economy is recovering quickly thanks to domestic demand. Investors should focus on businesses that have stayed strong and have good domestic prospects, such as Yum China. While Yum China is well entrenched in coastal cities, there are many smaller cities inland where it can still expand. And, Chinese tech stocks have pulled back, but declines have been moderate.
- As bottom-up investors, we are less concerned by the timing of a vaccine or how long the COVID fight will last. Despite these uncertainties, the strongest businesses in their respective industries should prosper in the long run. However, we are paying close attention to secular shifts that are accelerating or changes that may become permanent because of the pandemic, such as the move to online grocery shopping and education, as well as shifts in global supply chains.
The commentary is the opinion of Vontobel Asset Management. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.
Past performance is not a guarantee of future results.
All investments carry a certain degree of risk, including possible loss of principal.
Important Risk Considerations:
Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk. Foreign & Emerging Markets: Investing internationally, especially in emerging markets, involves additional risks such as currency, political, accounting, economic, and market risk. Market Volatility: Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issue, recessions, or other events could have a significant impact on the portfolio and its investments, including hampering the ability of the portfolio manager(s) to invest the portfolio’s assets as intended. Prospectus: For additional information on risks, please see the fund’s prospectus.