28th August 2015
Investors may be wary of putting their money into emerging markets but for the brave the rewards could be huge.
Ben Preston, director of Orbis Investment Advisory, said that market turmoil across emerging markets offers an opportunity to long-term investors.
He said that while it can be ‘tempting to follow the crowd’ and join the mass exodus out of emerging market shares, this can cause you ‘to miss compelling individual opportunities’.
‘Dismissing a whole region out of hand is a mistake,’ he said. ‘Economic conditions in many emerging markets have clearly deteriorated, but long-term investors should not be deterred. Investing during times of economic weakness often yields the best long term results.’
He said the best time to buy in the US and Europe was during the global financial crisis when others investors were selling ‘at any price they could get’.
‘The market often rewards those who can hold tight when others panic and run for the exits,’ he said.
Preston thinks the perception that emerging markets are risky are misguided.
‘Paying too much for an asset is the greatest risk investors face. The way to lose money on the stockmarket is to overpay for shares,’ he said. ‘It’s counter-intuitive, but investing is riskiest when share prices are high and the economy is strong: often just when it feels safest.
‘When market turmoil allows you to purchase a high-quality business below its fair value, long-term risk is reduced.’
While there has been a flight to perceived safer Western assets, Preston said investors were not taking into account the risks they pose.
‘A business is not inherently a safe investment just because it operates in the US or Europe,’ he said. ‘Risk has many components. It may well be less risky to own a high-quality and well-financed company in a developing country, than a mediocre or heavily indebted company here or in the US.’