Emerging market risks and rewards and increasingly attractive large-cap U.S. stocks were on the menu on Thursday at a Dreyfus Corp. and BNY Mellon Asset Management press breakfast in New York.
The four asset managers on the dais at “2011 Investment Symposium: Investing for Markets in Transition” looked at:
- The best opportunities in emerging markets
- Finding value in value equities
- Globally improving real estate assets
While introducing the four speakers, Dreyfus Chairman and CEO Jon Baum (left) noted that the global markets have been transitioning rapidly in the last seven or eight years. As a result, he said, companies such as Dreyfus are no longer sleepy mutual fund firms but are now rather “multi-boutique” asset management specialists tracking the constant changes in equities, fixed income, currencies, commodities and property.
With that in mind, Alexander Kozhemiakin, managing director of emerging market strategies for Dreyfus affiliate Standish Mellon, launched into a discussion of how to balance risks in emerging markets with the rewards to be found there.
Investors often make the mistake of thinking along the lines of specific bonds, equities or commodities, when what they should really be asking is how much emerging markets they have in their portfolios and from what countries, he said. “You have to diversify your country-level risk when investing in emerging markets.”
What defines emerging markets is risk, Kozhemiakin said. For example, relatively wealthy countries such as South Korea, Israel and even Ireland are currently identified as emerging-market assets because of their high social, economic or political risks.
Hugh Simon, CEO of Hamon Investment Group, said that risks in Asia are now focused on the rise in interest rates as salaries rise and the Pearl River Delta middle class grows and consumes more. India’s economy also is growing, which is why Simon is looking into launching an India fund.
“What we’re seeing is serious demand by half the world’s population growing into the middle class,” Simon said of China and India combined. In 1998, the Bank of New York Mellon became a strategic institutional partner of Hong Kong-based Hamon to help increase the group’s U.S. client base.
Turmoil in North Africa and the Middle East is not a reason to stay away from emerging markets, and oil is not at a level to pose a serious threat to the global recovery, Kozhemiakin said. In fact, he noted, events in the region help explain why his group is currently involved in a new product launch for a total emerging-markets strategy fund.
However, Brian Ferguson, portfolio manager for the Dreyfus Strategic Value Fund, disagreed, saying that the current state of play in the oil markets is a threat to the U.S. recovery. “Sharp, short shocks” to oil of $10 per barrel poses a headwind for U.S. GDP, he said.
Overall, Ferguson added, U.S. large-cap companies had a “break-out” fourth-quarter 2010 reporting season, and they are now well poised for a attractive valuations supported by the accelerating business environment.
In particular, he said, the Finance sector has gone through a lot of pain but is now charging ahead thanks to good credit, margins and loan growth. This month’s government stress tests will be an important one for banks—and those that get the government’s blessing of their balance sheets will soon start deploying capital.
“Most banks will be prepared for this. They have been hoarding cash,” Ferguson said. “We’re seeing a dramatic improvement in corporate confidence.”
Finally, more confidence is coming out of the global real estate market, reported E. Todd Briddell, president and chief investment officer of URDANG Capital Management, which is BNY Mellon’s real estate investment advisory subsidiary.
“It feels like it’s shaping up to be a Goldilocks market in commercial real estate,” Briddell said, pointing to market such as Hong Kong and Singapore where demand is high, supply is low and rental rate growth is positive.
Read “In Emerging Markets, Proof of Progress Is Key” at AdvisorOne.com.