| Over the past few years, we have seen many emerging markets implementing effective fiscal and monetary policies as well as social reforms. We expect these efforts to bear fruit and thus lead to stronger economies and greater investor confidence in the markets. Many of the emerging markets have also continued to release positive macroeconomic data, the benefits of which should flow into the nations' stock markets in the long-term. We expect companies with attractive valuations, improved corporate transparency and good managements to do especially well going forward. Visible with the expansion of the EU trade bloc, emerging markets continue to benefit from greater globalization. Not only does the liberalization and development of these economies encourage high capital inflows, you've got a narrowing gap between emerging markets and the developed markets in terms of technological and market know-how. Moreover, there is an ever-quickening velocity of information-transmission around the globe, which has led almost inexorably to quantum jumps in the living standards of the emerging markets population. All of these will continue to come together not just for the accelerated growth of emerging markets but also to improving stock price levels of the companies spearheading these changes in socio-economic development in the emerging markets.
The outlook for emerging markets remains positive. We expect companies to continue to grow earnings and further strengthen their balance sheets. Overall, valuations are still below the levels that we have seen in the past. Fundamentals remain sound. We continue to see significant good opportunities in Asia, South America, Africa and Eastern Europe. China, India, Brazil, Eastern Europe and Russia are set to continue their high GDP growth rates The key however is to find undervalued companies that are well capitalized and have a unique and competitive product range. We are also looking out for companies that are paying solid and sustainable dividends.
By industry, we believe that sectors that are geared towards direct consumption will continue to benefit from higher disposable income per capita. We believe that the food and beverage sector, fast moving consumer goods and the consumer staples sector are set to perform well in global emerging markets. Going forward, we also see rising health care spending and thus the need for cheaper pharmaceutical substitutes, which is why the generic pharmaceutical sector should regain its longer-term momentum.
Well there are endless advantages to investing in emerging markets; investors must also take into account the risks. The biggest risk, one that affects all markets globally, is the risk of terrorism. The situation in the Middle East, with the passing of Yasser Arafat, is another concern. Oil from the Middle East is critical for the economies in Asia and other parts of the world and any disruption to its supply would have serious repercussions. Other risk factors include the rapid economic growth in China and the Chinese government's ability to slow it down to a more acceptable level, and the serious US trade deficit, The global economy still depends to a large extent on the well being of the US economy and a slow-down in the US or rapidly rising interest rates could have serious repressions.
The comments, opinions, and estimates contained herein are based on or derived from publicly available information from sources that we believe to be reliable. We do not guarantee their accuracy. The commentary, which is for informational purposes only, sets forth our views as of the date published. The underlying assumptions and these views are subject to change. There is no guarantee that any forecasts expressed will be realized. Franklin Templeton accepts no liability whatsoever for any direct or indirect consequential loss arising from use of this report or any information, opinion or estimate herein. |
