EU could learn lessons from emerging market economies
Emerging market (EM) countries have much stronger balance sheets, a more positive investment outlook and risks that are comparable to most developed market economies.
EM countries were forced into many painful reforms in response to the effects of the Asian financial crisis of 1997, according to JO Hambro Capital Management fund manager Paul Wimbourne.
Desperately relying on financing from institutions like the World Bank and the International Monetary Fund, EM nations had little choice but to accept the fiscal policies imposed upon them.
As a result, however, countries such as China and India have more attractive opportunities for growth and a lower debt ratio at government, corporate and consumer levels compared to developed markets, Wimbourne said.
"These are the same types of reforms that we in the West probably need to go through, but at the moment the medicine is too painful for us," he said.
"We're trying to kick everything down the road and avoid the rebalancing and restructuring that needs to be done."
Wimbourne said that, in saying that, it has been his experience that emerging market equities often "go wrong or right" at the country level, and it was important to take a top-down approach to EM investing.
"What we look to do is get 50 per cent of our value-add from country selection and 50 per cent from stock selection," he said.
Wimbourne said the valuations of EM equities were attractive at the moment in relation to the strong growth prospects. However, it was also important to keep in mind the sustainability of growth over the long term in order to avoid the characteristic "boom/bust" scenarios of EM markets in 1990s, Wimbourne said.
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