Our lady’s not for turning

Merryn Somerset Webb isn't about to digress from the 'trade of the decade' just yet. But she is buying into emerging markets.

MoneyWeek is well-known for its trades of the decade'. In 2000, Bill Bonner made a pretty simple one. Sell equities, buy gold. It was brilliant, and made a good few people pleasantly rich.

In 2010, Bill came up with sell bonds, buy Japan' for the simple reason that the latter was cheap and the former expensive. We liked that, but wanted something even simpler. So we chucked in another sell emerging markets, buy developed markets'.

At the time, we reckoned that developed markets looked significantly cheaper than emerging ones.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

The market had recognised all the problems in the US and Europe (hence the prices), but was still allowing itself to believe that all was well in fast-growing Asia.We disagreed. We feared a new financial crisis in China, we worried about currency wars, about growth across Asia, about the general treatment of shareholders in some of the markets in question, and about price. That's worked out pretty well in the last three years.

Emerging-market growth did start to fall in 2010; markets did start to recognise that prices were too high; and they have consistently underperformed developed markets ever since.

But here's the thing: emerging markets aren't expensive any more they are verging on cheap. Look at it in pure price/earnings (p/e) terms, and the MSCI World Index is on about 14 times earnings, while emerging markets are on about ten times. Look at it on cyclically-adjusted p/es (Cape) and it looks even better.

I was asked at a lunch given by brokerage house CLSA this week what my trade of the decade would be if I could make it now, three years in. Making a new one three years rather than ten years after the first defeats the object, so I think I am not for turning (yet).

But having been very anti-emerging-market exposure for some time, I will suggest a little more strongly that anyone who likes to feel they are getting value buys some.

Emerging markets are not a homogenous or anywhere-near perfect group. But most aren't as obviously weak as they were, say, in 1997. They have floating currencies, more reserves and less foreign-currency denominated debt (so it doesn't matter quite as much if their currencies fall). They also have governments who have been here before.

I'm still holding a fair amount of cash (on the basis that there is a possible deflationary shock just around every corner and that much of the market is too complacent about the risks). But I'm also planning to buy a little more cheaper-than-ever Russia, some China and, for good measure, some of the Genesis Emerging Markets Investment Trust (LSE: GSS).

It has too high a management fee (1.5%), something the board should do something about sharpish. But it is invested in cheap places and trading at a discount of 8% to its net asset value. We like that.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.