Emerging markets roared back from multi-year lows in March. Michael Kass, Portfolio Manager of 5-star rated Baron Emerging Markets Fund says it’s a trend not a trap.
WEALTHTRACK Episode #1242; Originally Broadcast on April 09, 2016
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- Portfolio Manager,
- Baron Emerging Markets Fund
There is more evidence that the Federal Reserve is reducing its planned series of interest rate hikes this year. Minutes released yesterday from the Fed’s March meeting show broad support from the Federal Open Market Committee’s 17 members. “Many participants expressed a view that the global economic and financial situation still posed appreciable downside risks to the domestic economic outlook.”
Professional investors are trimming their rate hike expectations. At a press luncheon yesterday, Loomis Sayles’ legendary bond manager Dan Fuss, who generally avoids making specific rate forecasts, opined that it was unlikely the Fed would raise rates more than once more, especially in an election year.
The Fed’s delay is boosting the outlook for emerging markets. Stock, bond and currency markets in the developing world had strong rallies in the first quarter. The benchmark MSCI Emerging Markets Index soared more than 20% from its low in January. Local currency bonds delivered a total return of more than 8% in March, the most since their rebound during the financial crisis in 2009.
But skeptics abound that the rally can last. Emerging market economies are still under pressure from the slowdown in their super power China, the dramatic decline in commodity prices, depreciating currencies, rising debt levels and declines in corporate profits.
Emerging Market bulls are focusing on longer term trends like demographics. A recent report by leading private sector think tank the McKinsey Global Institute focused on the global consumers to watch. One of its key findings is that as world population growth slows, which it is doing, “Global consumption growth – the demand that fuels much of the world’s economic expansion – will depend heavily on how much each individual spends.”
The report points out that knowing where the most spending will occur and what products and services they will buy becomes extremely important to companies, policy makers and yes, investors.
McKinsey Global Institute predicts that by 2030 nine groups of urban consumers will generate three-quarters of global urban consumption growth and half of that will come from just three groups. Two of those are in the developed world.
Not surprisingly, the third group identified resides in China, specifically “China’s working age consumers (15-59 years). Their number will expand by 20 percent – an additional 100 million people. Their per capita consumption is expected to more than double. By 2030, they will spend 12 cents of every $1 of worldwide urban consumption.”
These projections might be new, but the rise of the Chinese consumer is an old story. It is one that this week’s guest, Michael Kass believes in, with a twist on how best to invest in it.
Kass is the Portfolio Manager of the Baron Emerging Markets fund which he launched at the beginning of 2011. Ranked 5-star by Morningstar, the fund has far outperformed the competition in the Diversified Emerging Markets category and beaten the market over the last 3 and 5 year periods.
Given the uncertainties in emerging market economies and the volatility in their markets, I asked Kass why we should even consider investing in them now.
If you can’t watch the show on television you can always see it on our website. You’ll also find an exclusive EXTRA interview with Michael Kass there.
Thank you for watching. Have a great weekend, and make the week ahead a profitable and productive one.
P.S. The Wall Street Journal’s Wealth Adviser reporter, Veronica Dagher was kind enough to invite me on her Watching Your Wealth podcast this week. She asked me to share some of the best investing advice I have gotten from great investors over the years. Here’s the link.
CONSIDER ADDING SOME EMERGING MARKETS TO YOUR PORTFOLIO
SOME MORNINGSTAR PERRENIAL FAVORITES WITH LONG TRACK RECORDS
- American Funds New World (NEWFX)
- Harding Loevner Emerging Markets (HLEMX)
- Vanguard Emerging Markets Stock (VEIEX)
No Bookshelf titles this week.
CHINESE INTERNET PLATFORM
- Tencent Holdings Ltd ADR (TCEHY)
- Price: $19.99 on 4/5/16
- 52-week range: $14.90 – $23.80
[tab]No stock mentions in this episode.[/tab]
[tab]This transcript will be available soon. More information regarding WEALTHTRACK transcripts can be found here
[tab] This is the first appearance of Michael Kass on WEALTHTRACK.
Before Michael Kass launched the 5-star rated Baron Emerging Markets Fund in 2011 he managed funds focused on big companies in developed markets. We asked him what the biggest difference was between investing in developing markets and established ones.