Value small-cap stocks in Asia continue to trade at very significant discount to so-called growth stocks, despite the fact that value stocks grow earnings faster over the long-term. Fidelity Asian Values PLC (LON:FAS) portfolio manager Nitin Bajaj outlines the key areas of opportunity among this under-researched segment.
What is your investment outlook for 2024 given the prevailing macro environment?
Emerging markets have continued to underperform developed markets. Weakness in China and concerns around geopolitics explain part of this, with both factors posing tail risks that we are scrutinising with vigilance. Nonetheless, the discount at which emerging markets are trading is at odds with the improving fundamental picture in many cases. This is especially the case given that inflation appears to have peaked in many economies, interest rates have started to come down and we are seeing many companies – particularly in China – return capital to shareholders.
The strong fiscal position of many emerging economies also stands the asset class in good stead. Unlike many developed countries, emerging markets were largely slow to extend fiscal subsidies during Covid lockdowns. We see lower levels of debt-to-GDP in many emerging market countries, particularly relative to the US, where the near-breaching of the debt ceiling brought the country’s unsustainably high levels of debt into sharp relief.
