Written by Heidi Richardson

I continue to be encouraged by improving fundamentals in many emerging countries... Specifically, there are three reasons that potential opportunities may exist in emerging Asia.

1. Economic fundamentals

Asia has displayed the strongest growth of any emerging region, as well as favorable trends in inflation and current accounts measures (Source: IMF, Bloomberg). See the chart below.

(Click on image to enlarge)

With lower external debt than other regions, Asian economies have been less vulnerable to a strengthening U.S. dollar, which remains one of the main risks to our outlook for emerging markets. Controlled inflationary pressures also support our expectation of further policy accommodation by Asian central banks.

2. Policy support

Political change in many countries is driving expectations of structural reforms...India is a good example of a government committed to reforms that has sparked investor interest and where we are encouraged by recent successes. A drive for fiscal spending in areas such as infrastructure in Indonesia also has the potential to bolster growth in the future.

3. Improving earnings and attractive valuations

Earnings revisions have improved across emerging markets, with Asia leading the way in terms of return-on-equity. In addition, EM Asia dividend yields currently rival those of developed markets, based on the MSCI Emerging Markets Asia Index. With a current price-to-book of 1.57, valuations remain reasonable relative to both developed and emerging markets (source: Bloomberg).

Undoubtedly, investing in emerging markets is not without risks:

• A rapid strengthening of the U.S. dollar,
• unexpected events from China
• and idiosyncratic risks in the different countries (for example the passing of the Thai King, or the impact of Samsung’s woes on the South Korean market)

are some of the risks that warrant a closer eye...

With a more selective view, there may be potential investment opportunities in India, Indonesia and China, and expect volatility to create potentially attractive entry points.