Strategy Note /

Beggars Banquet: Fund strategy and top market picks in FM and small EM

    Hasnain Malik
    Hasnain Malik

    Strategy & Head of Equity Research

    Tellimer Research
    5 June 2019
    Published by

    After a long list of crises in the past decade or so, FM and small EM public equities represent a diverse and attractively valued opportunity set, particularly for the active fund manager. Passive funds are not well suited to this niche asset class. 

    This report summarises our views on two topics. 

    First, we suggest, humbly, how actively managed funds might adapt their structure, in an ideal world, to best take advantage of this opportunity by attracting stickier assets, embracing more markets and more asset classes, and veering further away from broken benchmark indices. 

    Second, we rank 33 FM and small EM markets, as a global group and by region, on the basis of a subjective assessment along four themes: valuation, currency risk, growth outlook and political risk. We also screen, using trailing valuation metrics, for cheap stocks in each of these markets.

    We assume that the current global backdrop persists: US-China tension, benign US rate outlook, heightened concern on FX rate vulnerability in emerging markets and high oil prices. 

    Regionally, we are more positive on Asia than the Middle East, LatAm, Africa and CEE-CIS. Our top three individual markets are Bangladesh, Vietnam and Egypt, although each has its own risks, of course. 

    By region, our top picks are as follows: Bangladesh and Vietnam in Asia, Dubai and Qatar in GCC-Levant, Colombia in LatAm-Caribbean, Egypt and Ghana in Africa and Kazakhstan in CEE-former CIS.

    Our full range of market views is illustrated immediately below. 

    Figure 1: Our ranking of frontier and small emerging markets

    Source: Tellimer Research

    This 37-page report draws on detail contained in previously published research (hyperlinks in the appendix). For more on the arguments and data supporting the conclusions presented here, please contact the author.