Global Emerging Markets


“Prospects for emerging markets are positive given their sound fundamentals.”


Identifying quality companies Amid all these developments (and potential pitfalls), how does one keep on top of companies? India alone has 7,000; there are perhaps 20,000 across the emerging market universe as a whole. The answer is simple and even


paradoxical: We don’t. Or rather we don’t try to master the intricacies of every country, the ins and outs of ministers and policy and what companies might prosper or fail. Instead we do much of our preliminary work at our desks, finding the companies that have good track records, reading the annual reports and talking to our contacts in the industry. We then bring our local knowledge to bear, visiting potential investee companies ourselves, grilling management and comparing what they tell us against what they subsequently do. We have rarely seen an advantage


in being ‘first’ to a company. Investing is never a race. In practice we tend to take our time getting to know companies; in some cases it takes years before we develop comfort. As stock-pickers we look for companies with qualities that can help them grow progressively over the long term, such as solid balance sheets, strong competitive advantages and sustainable business models. We then make sure we don’t overpay. By this method we control the risks that we can assess and disregard those we cannot


control. And in time, provided we continue to monitor our companies well, we believe the market will come round to our way of thinking and reward us accordingly. The value of this due diligence is that


in effect stocks become self-selecting. We only buy half a dozen new companies a year for any given strategy, if that. This reduces turnover. It also makes us less sensitive to (and therefore less distracted by) market “noise.” And we can look dispassionately at market gyrations and see opportunities.


Positive prospects and sound fundamentals I said at the outset that stay-at-home investors may feel vindicated by events today. And it’s true: Emerging economies and their stock markets will not be immune to global developments. Subpar growth here in the U.S., Europe’s debt crisis and now a bubble in China’s real estate sector are combining to weaken confidence globally. This could last some time, too. We do not see the private sector investing enough to take up the slack of a fiscally constrained West. But the plain fact is that having survived


the previous global financial crisis, emerging economies, with notable exceptions (such as Emerging Europe), are solid. We therefore see the recent pullback more as a function of heightened risk aversion than a structural reverse. After sharp falls, the share prices of


some high-quality companies are trading now at attractive levels; this makes the current buying opportunity appealing. We have been adding to some of our preferred holdings in turn. We believe, then, that prospects for


emerging markets are positive given their sound fundamentals. Long-term investors with a contrarian bias will understand that this is not the moment to lock in their horns – but diversify.


Mr. Kaloo is head of global emerging markets, responsible for the London based global emerging markets team, which manages Latin America and EMEA equities. Mr. Kaloo also has oversight of global emerging market input from the Asia team based in Singapore, with whom he works closely. He joined Aberdeen in 2000 on the Asian portfolio team before becoming responsible for the Asian ex Japan region as well as regional portfolios within emerging market mandates and technology stocks. Previously, Mr. Kaloo worked for Martin Currie on the North American desk before transferring to the global asset allocation team and then Asian portfolios.Mr. Kaloo graduated with a MA (Hons) in Management and International Relations from The University of St. Andrews and a postgraduate diploma in Investment Analysis from The University of Stirling.


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