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BlackRock: We Don't Invest in Turkey or Pakistan - YouTube
Channel: Morningstar Europe
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hello and welcome to the Morningstar
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series why should I invest with you I'm
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a mewar I'm joined today by Emily
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Fletcher co-manager the Black Rock
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frontiers fund hello good morning so
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what is meant by frontiers because for
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you and this fund its recently become a
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lot of broader a remit hasn't it
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sure exactly thank you so when we think
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about frontiers I mean really you have
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the developed markets which I think are
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very distinct to emerging your frontier
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and then you have really the rest of the
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world you know the emerging in the
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frontier markets and within that we
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don't invest in the top eight emerging
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markets the largest eight which
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represents around eighty five percent of
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the emerging market benchmark we think
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it's therefore about 85 percent of where
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most people are invested in emerging
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markets eighty-five percent of people's
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time and therefore really the rest we
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rename sort of the Forgotten 40 you know
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and sub markets that's what we think is
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really interesting the things that
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people generally overlook where we think
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that correlations between the markets
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are lower correlation for example
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between any stock in those top eight
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markets medium pairwise correlations 0.6
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in our markets that comes down to 0.1 so
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much lower correlations and we think
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forgotten
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so therefore interesting markets because
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they're generally overlooked by your
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typical investor he doesn't really have
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the time or the scale to have to focus
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on these small markets which take a lot
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more time and therefore there's the
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opportunities of alpha in these less
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efficient markets so we focus on those
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smaller emerging in frontier markets and
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one of those that you've recently become
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more positive on is Egypt and I think
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that's quite an interesting case study
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because it does have connotations Egypt
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which have recently been quite negative
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and that also is quite typical of
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frontier and market investing there is
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much more macro political noise and
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considerations than say if you were a US
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equity investor there is and it is
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important to have a good understanding
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of the macro in all other countries we
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invest in and the reason is because
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we're dollar investors so you wouldn't
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want me to turn around at the end of the
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air and say I've done fantastically well
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your funds after 200 percent in kwacha
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you know what's important is how the
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fund has done in dollars so therefore
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the understanding of not only what the
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equity mark is going to do but the fixed
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income market and also the currency
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market is hugely important when
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investing in these small
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emerging in frontier countries so to
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take Egypt as an example when did we
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start to get interested in Egypt well it
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was after the very substantial currency
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devaluation that Egypt saw around 18
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months or two years ago which then meant
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the currency is is now on at a
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sustainable level at the same time the
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government has also stepped in to do
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substantial things to address that what
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was then a huge fiscal deficit and as a
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result of that they've now put their
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debt or they should be putting their
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debt on a sustainable path so debt to
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GDP having peaked at around 100 110
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percent should gum down to around 80
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percent over the next two to three years
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still a high level there's something
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that I think becomes unsustainable for
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them to be able to grow off why are we
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interested in Egypt at the moment
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because we think that domestic activity
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can start to accelerate for here from
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here sorry and we think that should be
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positive for equity prices and of course
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you are a bottom up stock picker but as
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you suggest there there is this overlay
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of macro because the dollar
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considerations because the geopolitical
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rumblings in some of these regions can
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be far louder than in developed markets
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are there any particular countries for
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those reasons that you just say actually
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we're gonna leave for now yes I mean at
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the moment our view is on emerging
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markets we were broadly positive with a
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couple of exceptions and the exceptions
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for me at the moment would be the
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Philippines will be Turkey and will be
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Pakistan those are all countries that we
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are either avoiding or someday in some
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examples have shorts in our portfolio
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for the reasons that we think that the
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countries are the economies are
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overheating or we think the currencies
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are substantially overvalued and and we
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think that those problems will manifest
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you know in what happens in the equity
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market and you will lose money and when
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the currencies get very overheated in
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our markets and you do have a big
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devaluation well the XE market tends to
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be positively correlated and you lose
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money both on the currency and the
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equity market so those at the moment to
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a bigger void for us Emily thank you
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very much pleasure this is Emma war for
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Morningstar thank you for watching
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