Outlook for EMs seem wealthy at this point: Jan Dehn

Bank of America Merrill Lynch Fund Manager’s survey indicates that investors remain stubbornly bearish on emerging markets (EM) equities.

Jan Dehn of Ashmore Investment Management believes that there were some very heavy technicals that had crept into the emerging markets (EMs) in the first half of the year, but now a lot of those positions are improving. According to him the outlook at this point looks very wealthy for emerging markets. He told CNBC-TV18 that India has made some rules on fiscal and reforms, but there is a real confident issue in the Indian economy and that needs to be changed. Below is the verbatim transcript of his interview to CNBC-TV18 Q: I am reading from this Merrill Lynch Fund Managers survey that the fund managers right now are most bearish on emerging markets (EMs) over the last 12 years, since you also run a lot of money, just wanted to check what is your call on EMs right now? A: I disagree quite strongly with that view. There is a very strong reason why there was a sell-off in emerging markets in June. It has been some very heavy technicals that had crept into the market in the first half of the year. A lot of those technicals have essentially been eliminated meaning that a lot of those positions has been squared off and so the technical positions are improving. The outlook at this point looks very wealthy for emerging markets. Q: In actual terms apparently the funds of the surveyed fund managers, their exposure is at 12-year lows to emerging markets, what is your sense, do you think the mood is turning at all? After all we did see improving delta in the organisation for economic co-operation and development (OECD) countries as well as in the US but do you think that there is a sense of valuation reaching the right levels and therefore perhaps we are on the cusp of moving funds moving to emerging markets at all? A: I think the time to buy would have been in the middle of the year, the June sell-off. We have come off the lows quite considerably in several markets. We are still trading below the levels that we had in Q1 of this year. So, it is absolutely still value there. However, we have to take into account that we are in the middle of the summer holidays in Europe and United States. Volumes are very low, a lot of investors are on the beach and we have to take the issue of uncertainty surrounding the tapering announcing in September ahead of us. So, I think what is likely to happen is that as we get to September and that piece of uncertainty is removed from the market then I think the market should be in a position to make much stronger directional move. Q: How are you looking at the emerging market space in terms of its key constituents? I do not know how closely you look at India but do you see this market giving you delta as far as the Nifty is concerned, we seem to be repeatedly hitting some kind of a floor at the 5,500 level, is that a floor which you would respect? A: I think India is facing a bit of a confidence problem. India has made some rules on fiscal, it has made some rules on reforms but there is a real confident issue in the Indian economy and something little more substantial needs to change in order to break that psychology. It may simply be that the external market environment has to improve as well, but we do have an election ahead of us in India. So there are some headwinds here. However, I think it is important to step back and take a look at the broad fundamental picture in India, which remains very promising for the long-term investor. Given the weakness that has crept into the Indian economy recently, there is probably an opportunity here for somebody who is a little patient to go in and selectively take some exposure here and there. I think India’s problem is a confidence problem. If you can turn around the dynamic in the currency in particular then that is likely to have a positive effect on business confidence. Then business confidence in turn is going to lead to greater business sentiment and high economic growth. So, maybe we will see something like that as the new Central Bank governor comes in. But I think something needs to break the sort of negative spiral that we have right now.