Mackenzie Minute: October 5, 2018
Arup Datta, head of the Mackenzie Global Quantitative Equity Team, shares his short and long-term outlook on emerging markets.
ARUP DATA: Emerging market equities are down significantly this year, giving back a lot of the gains they had last year. The main reason for this drawdown in emerging markets is US-led trade wars/tariffs, which has also led to the US dollar strengthening. Both those reasons have led to emerging market equities going down because of worries about the growth in various emerging market economies as a result.
The trade tensions need to subside for the very cheap emerging market stocks to recover. That's the lack of catalyst they have had this year. My personal view is that we are well into the heart of the trade tensions and soon they will slow down, which will lead to these cheap markets to recover quickly. One thing people should always keep in mind is most of the world's economic growth in the last decade or so has been led by emerging market countries. Despite that, the US stock market has led the way in terms of stock market performance. I believe it will reverse and in the next decade emerging stock markets, will lead the way.
We employ a very quantitative bottom-up stock selection process which is based on fundamental insights. This approach historically has done well in emerging markets, mainly because of the fact that emerging markets has a wide variety of stocks, which is hard for good fundamental managers to cover. It's not just the variety, it's the number of names, which is easier for a quantitative disciplined approach to cover. This style of quantitative approach, combined with the focus on capacity which we have, has led to strong excess returns over broad indices in the past.