Investors should look at China as a global growth play and not just a play on Asia, according to GAM emerging market manager Tim Love.
‘We like to play growth stocks in markets that have bounced back because of political headwinds. These are great opportunities alongside playing the positive carry trade heavily, namely in Brazil, Russia and South Africa,' he told Citywire Selector.
Love, who currently has 24.1% of the fund allocated to China and 10.6% exposed to Brazil, said the fund’s asset allocation is a play on China’s growth through second derivatives of growth commodity exporters, such as Peru and Latin America.
‘China’s growth is distorting all the supply chains globally, and, in that sense, Latin America is the most wonderful way of playing a rebound in global growth, driven partly by China’s stronger story, so we are overweight LatAm and it plays well for us.
‘We are confident on Brazil as its inflation rate is falling very consistently and quickly, therefore delivering a positive carry trade.’
With 5.4% allocated to India, Love said he is also positive on the country despite the de-monetisation programme and potential political headwinds.
‘Our allocation to India is subject to political change in the short to medium term. The easiest EMs at the moment are the ones that are through the worst of their political cycles and are benefitting from the tailwinds of lower inflation and lower interest rates.
‘Brazil is our biggest overweight, while our second biggest overweight is Russia, which is a much more complicated play as it’s much more subject to global politics, rather than domestic.’
Love said there is a lot of money to be made in Brazil as it has a higher conviction trade than countries with more politically-linked international issues, such as Russia.
‘Brazil and Russia are in the positive carry trade group, and are currencies which are supportive of a rebound in the market.
'Because if you are going to put your buck of deposit account money somewhere in the world – you put it somewhere where sterling will stay flat and the other countries will rally.
‘For interest rate differentials and growth differentials, they would get a further kick because there’s a positive carry trade on the currencies, as real rates are actually much higher than where they are in the UK.’
The Julius Baer EF Emerging Equity fund returned 34.41% in US dollar terms, over the one year to the end of February 2017. This compares with a 29.94% rise by its Citywire-assigned benchmark, the MSCI EM (Emerging Markets) TR USD, over the same time period.