Equity-market indices in Asia and Latin America were among the worst-performing indices in 2011. These markets moved largely in sync with the unfolding sovereign debt crisis in Europe and renewed fears of a “hard landing” in the Asian economies – most notably China.
So, it’s not surprising that investors reduced their exposure to assets viewed as “risky” in the latter half of 2011. Fears of decelerating growth in China, India and Brazil drove a harsh equity sell-off in these three emerging markets. The currencies of India and Brazilalso fell sharply against major currencies, including the Canadian dollar.
In reality, however, all major economies in these regions (except for Japan and, to a lesser extent, India) enjoy relatively healthy government debt-to-GDP ratios, have little or no current account deficits and face manageable fiscal budget positions.
For example, countries such as South Korea, Indonesia, Mexico and Thailand have learned hard lessons from their own policy mistakes in the fairly recent past, and have been conservatively managing their economies for a number of years. As a result, most selling was being driven by the usual suspects: short-term-focused foreign speculators and the panicked herd.
This theme is similar to past occasions of emerging-market “contagion” fears.
As investors, what we are most concerned with is seeking out long-term opportunities amid all the market noise in these regions. We’re likely looking at a decades-long increase in regional demand for capital goods, commodities, financial services and consumer products. So, my aim is to identify companies that our team believes are positioned to get in on the action this creates.
To take advantage of the growing demand, a company needs a durable competitive advantage and, of course, a rock-solid management team. Trimark Global Fundamental Equity Fund currently owns 30 companies based in Asia and Latin America that we believe meet these stringent criteria.