PGE gets pernickety about emerging economy picks

03 January 2014   Category: News, Asia, Emerging Markets   By Hui Ching-hoo

Emerging markets (EMs) have fallen victim of the US quantitative easing (QE) tapering, which resulted in a capital exodus earlier this year. Principal Global Equities (PGE), an investment boutique of Principal Global Investors (PGI), tends to be more selective when identifying its picks in EM economies because of the variety of the countries’ balance of payments.

London-based Mark R Nebelung, who is managing director and an equity portfolio manager at the firm, tells Asia Asset Management that the company is broadly overweight in the countries with current account surpluses – such as Korea, China and Taiwan – and underweight to the emerging markets with current account deficits such as India and Indonesia, as it anticipates the deficit-stricken regions will bear the blunt of the QE tapering. “We’re pretty positive on the demand out of China in the medium- to longer-term though,” he adds.

“Within a global context, developed markets have exhibited improvement in the near term. We’ve seen bottoming out in some Asian emerging markets together with attractive opportunities in the developed side from Japan and Europe in terms of growth prospective and economic improvements.

On the demand side, Mr. Nebelung observes that his institutional clients have mixed interest in emerging markets, plus they have a renewed appetite for equities, especially for developed market equities. “We’ve seen a shift from defensive value- and fixed income-orientated strategies toward a greater appetite for risk and growth.”

Sector wise, Mr. Nebelung notes that the company prefers to go for cyclical- and consumer-related stocks. “With a considerable amount of monies flowing into safety and minimum variance type strategies, we are aware that the companies with low volatility – such as healthcare and utilities – are very expensive, so we decided to go underweight on the defensive and low volatility sectors.”

PGE currently has over 20 distinct strategies. The company has a broad spectrum of products from indexing in a low risk-relative basis to more traditional benchmark-relative strategies. The firm has recently launched a long/short version of its global opportunities strategy and is studying the feasibility of launching frontier market-related strategies.

PGI currently has total AUM of around US$300 billion, half of which is invested in fixed income assets. About US$99 billion is placed in equities and the rest is placed in real estate investments. “PGE’s business is purely institutional focussed. The majority of our assets are for retirement plans and institutional clients, and we also manage a wide array of US and off-shore mutual funds,” Mr. Nebelung adds.