Joanne Irvine, Head of Emerging Markets ex. Asia, Aberdeen Asset Management

Comments & Outlook

We employ a purely bottom-up stock selection process, so we don’t shift our portfolio based on a macro view of the market or chase different investment strategies or themes. However, we’ve been concerned with the situation in developed markets for some time and believe these markets face structural problems. We wouldn’t be surprised to see a recession in many developed markets.

Recommended Strategies

When investors are worried about a recession, they tend to exhibit heightened risk aversion. Emerging markets are often viewed as a risky asset class. But emerging-market countries have high levels of government reserves, strong corporate balance sheets and a young population that’s free of debt. Our investments are aimed at capturing the positive demographic trends found in emerging markets. Typically, we invest in companies that will benefit from rising domestic consumption. This includes conservatively run retail-focused banks, department stores and supermarkets. We shy away from cyclical businesses and regulated state-run businesses.

What to Buy Now

South Africa’s MassMart Holdings (South Africa: MSM, OTC: MMRTY) is very similar to Wal-Mart Stores (NYSE: WMT). In fact, Wal-Mart acquired a 51 percent stake in MassMart last June. Supported by Wal-Mart’s financial muscle, MassMart can accelerate its plans to offer fresh food to customers while continuing to build the franchise in other African countries. We still expect MassMart to take a conservative approach to growing its business, but the firm now has additional capital behind it.

Akbank (Turkey: AKBNK, OTC: AKBTY) is the No. 1 retail banking franchise in Turkey. The lender has a strong balance sheet and is owned by one of the country’s dominant conglomerates. Citigroup (NYSE: C) also owns a 20 percent strategic stake in Akbank. The bank is conservatively managed and there’s significant growth opportunity in the country. However, Turkey’s central bank has used unorthodox measures to manage growth—a development that’s concerned many investors. But our on-the-ground research indicates that Turkish lenders are comfortable with the central bank’s policies.

Gerry Colleary, Senior Portfolio Specialist, Wells Fargo Advantage Emerging Markets Equity (EMGAX)

Comments & Outlook

We’re not overly concerned with the market’s short-term movements. However, investors are surely aware of the structural imbalances in the world—the sovereign debt crisis in Europe and the US budget deficit. Japan’s economy has been dormant for 22 years and will likely remain so for some time. We believe the larger emerging-market economies will outperform developed economies in the second half of the year.

Recommended Strategies

There’s been a fundamental change in the role that emerging markets play in the global environment. Much of global economic growth is occurring in emerging markets. For example, China is no longer depends on demand from the West; the country has internal demand that will fuel growth. However, investing in emerging markets is not for the fainthearted. Focus on companies with a competitive advantage, strong financials and sound management. Seek companies with a return on capital (ROC) greater than the cost of capital, and greater than its peers’ ROC.

What to Buy Now

China Mobile (NYSE: CHL) is the No. 1 player in its domestic market with 650 million to 700 million subscribers. It’s the leading mobile network operator with regard to the size of its network, though it’s not the technology leader because the firm did not adopt the 3G network. However, it will leapfrog into 4G. China’s telecommunications market has yet to be saturated and China Mobile has an opportunity to participate in the domestic market’s growth. The stock trades at about 10 times forward earnings and has a dividend yield of about 4 percent.

Anadolu Efes Biracilik (Turkey: AEFES, OTC: AEBZY) is the dominant Turkish brewer with pricing power in its primary market. Although Turkey is a Muslim country, the law allows people to drink beer. However, companies are forbidden from advertising beer, a huge barrier to entry for potential foreign competitors who usually go on an advertising blitz when they enter a new market. Anadolu Efes also has a brewing interest in Russia, which could be an attractive acquisition target for one of the dominant players. The stock trades at about 15 times earnings. Anadolu Efes will never be a global player, but it will continue to deliver solid returns with very low levels of fundamental risk.