Each week, a professional investor tells MoneyWeek where he'd put his money now.This week:Xavier Hovasse,head of emerging equities at Carmignac.
Emerging markets have been through some stormy times recently and these are set to continue. Emerging-market currencies and South American politics dominated the year-end jitters, with the yuan still making headlines at the time of writing. Following its surprise devaluation this summer, the Chinese currency's pegging to the dollar has became the focus of concern.
Meanwhile, the political farce in Brazil over corruption at the state-run oil giant Petrobas is rumbling on. But as an investor, when it comes to selecting countries to buy into, what was and will remain key during these stressful times is to avoid the most costly threats, to manage the most complex ones well, and not to miss opportunities.
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In our Chinese portfolio, for example, technology companies NetEase and Baidu surged by +51% and +38% over the fourth quarter (in US dollars), thanks both to some excellent results and their leadership in industry segments with highly enviable annual growth of more than 30%. Fellow internet companies YY and Qihoo both received takeover bids (now completed), leading to rises of 15% and 52% over the fourth quarter. Those companies did very well despite some rather lukewarm macroeconomic data.
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Capital outflows have been taking their toll on China's balance of payments in recent months, in spite of measures to curb them. These outflows are weakening the yuan and forcing monetary authorities to intervene on the foreign-exchange market, which in turn means reduced liquidity at a time when Chinese inflation is negligible. And recently, China's monetary authorities publicly announced their decision to replace the dollar with a basket of some 15 currencies, which almost certainly heralds a fall in the value of the yuan.
Despite all this, local equity markets were less volatile than in the previous quarter, allowing us to buy food producer and distributor Dali Foods (Hong Kong: 3799). This acquisition was the natural result of our search for a company with low capital costs, high cash flows and projected annual turnover growth of more than 15%.
We remain high-conviction buyers of India. Although the pace of reform is slow and growth remains lower than might have been hoped, India's macroeconomic and political environment is still promising.
It is currently the only country able to demonstrate a tangible, sustained improvement in its potential growth level, based on a reform schedule aimed at stimulating nascent domestic demand in a number of sectors in which we hold large positions. For example, we increased our stake in Bharti Infratel (Mumbai: BHIN), which operates in the booming telecoms infrastructure sector.
The surprise election of Mauricio Macri is a real godsend for Argentina and seems to be bringing an end to a dark period of isolation since its default in 2001. The quality of Macri's presidential team will probably put Argentina back on track to becoming one of the finest frontier countries over the next few years.
We took advantage of this to buy MercadoLibre (Nasdaq: MELI), the undisputed e-commerce leader throughout Latin America. US and Chinese giants are nowhere to be seen and seem resigned to this, given MercadoLibre's unparalleled success. This company offers solid growth prospects (+20% turnover growth in 2015), generates high cash flows so that it can self-fund its growth, and is debt-free.
