SIMON BROWN: I’m chatting now with Feroz Basa. He is head of the Global Emerging Markets Fund at Sanlam Investments. Feroz, I appreciate the early morning time. A note that you put out talked around the move to emerging markets , and the story is that we’ve high yields in the US, worries about inflation, the Europe energy crisis – all of this has seen money rushing into the US. We see the strong dollar.
SIMON BROWN: Part of the attraction towards EMs is that they simply didn’t pump as much cash into the economies. You mentioned our inflation [being] below the US. Every time I think about that, truthfully I scratch my head, but the data is the data. That’s because emerging markets, even China, didn’t put nearly as much money into the pandemic as for example the US did, where they were basically just doing the Ben Bernanke ‘helicopter money’ story.
At the same time, they’re also trying to pull some of that stimulus back, so it’s almost like a double-whammy in terms of what we see in those markets. In that particular time emerging markets didn’t do nearly as much, and the valuations were cheaper than developed markets at that starting point. I always like to use the example of Turkey. Last year Turkey had significant massive inflation. The currency depreciated and investors started saying Turkey’s uninvestible. Now if you fast forward to this year, Turkey still has 80%-plus inflation. The currency depreciated by another 90%. But Turkey is one of the best-performing markets year to date – up 20% in US dollars. So it’s a very good example.
FEROZ BASA: Yes. So I think emerging markets. And that’s why it’s more risky and that’s why and trades at a discount created the discount, even though the growth potential is much better than developed markets.
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