There have been plenty of reasons for investors in emerging markets to be nervous, with Ukraine providing the latest turmoil. Ashmore, the specialist firm in the sector, remains upbeat, as it told this news service recently.

Ashmore Investment Management is a prominent investment management firm dedicated to emerging markets. The business was founded in 1992 as part of the Australia and New Zealand Banking Group. In 1999 Ashmore became independent and now manages $78.5 billion (as at 30 September 2013) with around $6 billion in equities.

This publication caught up with Julie Dickson,  equities portfolio manager at Ashmore, as she swung through the region. Dickson joined the firm in 2012. Prior to that, and since 2010, she had been working at Aviva Investors Global Securities as head of client portfolio management within its equities and investment solutions team.

Dickson is steadfast on the view that emerging markets offer good value and that the longer term outlook for this segment remains positive. Recent developments, such as those in Ukraine, have rattled some investors – but not, it would seem, those at Ashmore.
 
We have seen a sell-off and some nervousness recently across emerging markets. Was this justified?
In our view no. Fundamentals in emerging markets haven’t changed that much. We still expect them to grow at a higher rate than developed markets. Consumer spending is solid, valuations are very low already – this is a knee-jerk reaction to isolated events in specific EM markets, and/or news from the US. We’ve seen clearly last year and into this year how emerging markets are able to respond to and cope with the perceived threats of the US tapering the quantitative easing programme, so in our view much of the weakness we saw last year was unjustified.

How long will it take for the emerging markets to turn around?
That is hard to say. Much of what is driving market returns is unrelated to the actual strength of corporate fundamentals. Once investors begin focusing again on earnings, valuations and the actual ability for companies to grow do we expect markets to turn around. Part of this will be related to a return in investor confidence that the global recovery is on the way. Some of this was evident in February. In the immediate term while we expect some volatility, we are also seeing investors taking a view that valuations are very low. So we expect investors to return to the market as cheap bargains become hard to ignore.

China has been on the receiving end of a lot of negativity - what is your opinion of the Chinese market and which sectors do you like, if any?
Much of what drove markets lower in China was driven first by an expectation that it was facing a hard landing – this never materialised. Then China took steps to tighten liquidity to get lending growth under control and cool the fast rising property market. Despite this, China’s retail sales were up 11.5 per cent in 2013, more than any major economy.

We remain bullish on China. We believe China will ultimately continue on a path of reform while promoting growth. In our view China is undervalued but we remain selective in what we are investing in. As of the end of the year, we were overweight cyclicals, notably materials, technology and consumer discretionary.
 
Do you believe the Chinese government will be able to churn out 7 per cent growth for the next five years?  
Yes.

Most Asian investors are quite savvy with their own region; can you suggest some other parts of the world where they might look to find value?
We have an overweight position in South Korea; we also have a small overweight to India and Czech Republic. Also we like to maintain as broad a view as possible on the entire investment universe, which also includes frontier markets. We also have exposure to the Middle East, notably Saudi Arabia, UAE and Qatar.

Among the BRICS which are in the best position going forward?
We don’t necessarily focus along the BRICS theme. Our investment approach is based on fundamental value with a focus on quality and growth. At the moment in our view fundamentals are most attractive in China and Korea and less attractive in South Africa, based on valuation and earnings outlook. We are generally neutral Brazil and slightly overweight in India, based on selective holdings we are finding attractive there.

You cover emerging markets - do you have an opinion on which frontier markets globally could be the ones to transition up and make it into the emerging market group?
At the end of May this year the UAE and Qatar are being reclassified from Frontier to Emerging Market by MSCI. We believe this is good for the Middle East which has been unfairly ignored over the years due to conflict there. The Middle East has a great value proposition in these two markets and in Saudi Arabia, which tends to be our largest off-benchmark country bet. Many markets tend to be ignored by indexers and sell-side firms alike, so this creates a rich investment universe for active management and opportunity for outperformance.

We do believe that in the next few years we will see more African markets included in the emerging category and also recognized for the first time as part of the `frontier’ universe. This would be more representative of what is available and also add even greater diversification benefits already offered by frontier markets as a whole.