Navigating Emerging Market Turbulence

Transcription

1 Navigating Emerging Market Turbulence Susan Rohe November 2018 FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY

2 Learning Objectives 1 Emerging markets: Looking beyond the volatility 2 Current landscape and future prospects 3 Where is the opportunity? 2

3 1 Emerging markets: looking beyond the volatility 3

4 Loss Avoidance Is Key to Long Term Performance Max draw-down and max gain, per annum (MSCI Emerging Markets) 120% 108% 100% 80% 60% 64% 59% 40% 29% 37% 37% 37% 33% 35% 35% 34% 20% 12% 20% 22% 20% 18% 20% 14% 10% 0% -20% -40% -39% -35% -30% -12% -20% -11% -25% -18% -22% -18% -31% -18% -18% -17% -28% -13% -5% -18% -60% -80% -64% Drawdown Gain The figures shown relate to past performance. Past performance is not a reliable indicator of future results and should not be the sole factor of consideration when selecting a product or strategy. Source: BlackRock, Bloomberg, as at end July This is to demonstrate the volatility of emerging markets asset class. 4

5 EM Allocation In A World Index Still Too Low But On The Increase Emerging Markets Weight in MSCI ACWI Index over Time 16% Weight of Emerging Markets in MSCI ACWI Index 14% 12% 10% Weight % 8% 6% 4% 2% 0% Apr-88 Apr-89 Apr-90 Apr-91 Apr-92 Apr-93 Apr-94 Apr-95 Apr-96 Apr-97 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 EM Weight Source: MSCI, as at end April The figures shown relate to past performance. Past performance is not a reliable indicator of future results and should not be the sole factor of consideration when selecting a product or strategy. Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 5

6 A Growth Story Low EM weighting in global equities index. 60% of the world s population Growing share of global GDP Source: IMF, as of end April

7 How Much Emerging Markets Exposure Do I Need? Allocation to Emerging Markets vs Developed Markets (MSCI Estimates) 100% 90% 80% 70% 60% 60% 68% 78% 89% 50% 40% 30% 20% 10% 0% 40% 32% 22% 11% GDP Weighted Economic Exposure Full Market Cap Float Market Cap Emerging Markets Developed Markets Source: MSCI, as at end April FOR PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLY 7

8 Long-term Investors Are Rewarded In Emerging Markets But It Is Cyclical Historical Performance Annual Performance (%) YTD MSCI Emerging Markets Index -2% -2% -15% 12% 38% -8% MSCI World Index 27% 6% 0% 8% 23% 6% S&P 500 Index 32% 14% 1% 12% 22% 10% 2000 Index levels rebased to Ma y 88 Nov 88 Ma y 89 Nov 89 Ma y 90 Nov 90 Ma y 91 Nov 91 Ma y 92 Nov 92 Ma y 93 Nov 93 Ma y 94 Nov 94 Ma y 95 Nov 95 Ma y 96 Nov 96 Ma y 97 Nov 97 Ma y 98 Nov 98 Ma y 99 Nov 99 Ma y 00 Nov 00 Ma y 01 Nov 01 Ma y 02 Nov 02 Ma y 03 Nov 03 Ma y 04 Nov 04 Ma y 05 Nov 05 Ma y 06 Nov 06 Ma y 07 Nov 07 Ma y 08 Nov 08 Ma y 09 Nov 09 Ma y 10 Nov 10 Ma y 11 Nov 11 Ma y 12 Nov 12 Ma y 13 Nov 13 Ma y 14 Nov 14 Ma y 15 Nov 15 Ma y 16 Nov 16 Ma y 17 Nov 17 Ma y 18 MSCI Emerging Markets Index MSCI World Index S&P 500 Index The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results. Source: Bloomberg, in USD, as at end September Index returns are for illustrative purposes only and do not represent actual Fund performance. Performance is since index inception and returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. 8

9 2 Why the time is now 9

10 Changing Times Source: BlackRock, Shutter Stock. 11

11 What Could The Future Look Like? 2017 GDP at PPPs 2050 Country Rank Country China 1 China US 2 India India 3 US Japan 4 Indonesia Germany 5 Brazil Russia 6 Russia Brazil 7 Mexico France 8 Japan Indonesia 9 Germany UK 10 UK Source: PWC The World in 2050 February

12 3 Where is the opportunity? 13

13 Macro Philosophy: Tracking The Cycle Stage 1 Sell Off Stage 2 Healing Stage 3 Liquidity On Stage 4 Activity Surge 400 ~9 months ~6-12 months ~6-12 months ~2-3 years Philippines Turkey Currency weakens Bond yields up Activity slows down South Africa Malaysia Colombia Greece Mexico Qatar Current account improves Currency stabilises Bond yields start to decline Brazil Thailand Indonesia Russia China Liquidity pours in Currency appreciates Activity turns up Bond yields decline a lot India Activity accelerates Inflation goes up Current account deteriorates Bond yields go up Source: BlackRock, for illustrative purposes only, not meant to depict actual data. Country placement is not indicative of where these countries are in their actual economic cycles. Source: BlackRock as at end September

14 Fast Follower to Leader - Payments Buyer Acquiring bank Payment platform Bank Merchant Adoption (%) 80% 70% 60% 50% 40% 30% 20% 10% 0% Buyer Payment platform Merchant Increasing adoption of e-payments in China 2016 Oct 2017 Alipay Tenpay Cash Credit card Debit card Source: Chart by BlackRock using data from CLSA as of Dec For Illustrative purposes only. FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY 15

15 Learning Objectives 1 Emerging markets: Looking beyond the volatility 2 Current landscape and future prospects 3 Where is the opportunity? FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY 2 16

16 BlackRock Emerging Markets Fund

17 BFM Emerging Markets Fund Annual Performance Performance as of 30 September % 30.0% 20.0% Return 10.0% 0.0% -10.0% -20.0% YTD BFM Emerging Markets Fund (D2 GBP) -3.0% 30.2% 31.4% -14.4% 4.5% -2.8% MSCI Emerging Markets Index -4.2% 25.4% 32.6% -10.0% 3.9% -4.4% The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. Risks: Overseas investment will be affected by movements in currency rates. Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore the value of these investments may be unpredictable and subject to greater variation. Important Information: Index returns are for illustrative purposes only. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Performance figures are calculated net of annual fees in GBP on a NAV price basis with income reinvested. The performance data do not take account of the commissions and costs incurred on the issue and redemption of units. The return may increase or decrease as a result of currency fluctuations. Fund inception date 30 November PM inception date 29 March Source: BlackRock as at end of September

18 BFM Emerging Markets Fund Gordon Fraser, CFA Director 12 Years Inv. Experience Andrew Swan Head of Asia and GEM Equities 24 Years Inv. Experience Investment Region Emerging Markets Core Fund Emerging Markets Investment Objective and Strategy Fund Characteristics } Expected beta range: } Target tracking error: 3-8% } People and Resources Team of ~40 talented and empowered people located in six countries globally with differentiated views focused on company fundamentals Managers Benchmark Gordon Fraser / Andrew Swan MSCI Emerging Markets Index } Flexibility EM volatility is high and we believe a flexible style is required to capture opportunities and respond to changing market environment. EM macro is highly cyclical and typically mean-reverting and our proprietary Macro Process focuses on identifying turning points in macro cycles Market Capitalisation LARGE MID SMALL shares } Risk Management Deliberate, diversified and appropriately scaled risk management approach Style Flexible Strategy AUM $1.4bn Risks: Overseas investment will be affected by movements in currency exchange rates. Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore the value of these investments may be unpredictable and subject to greater variation. Risk management cannot fully eliminate the risk of investment loss The number of shares is indicative and actual numbers may fall outside the ranges shown The manager cannot guarantee that the intended target rate will be achieved. In addition, over time the target rate is subject to change at the Manager s discretion. $ reference is for USD. Investment philosophy and process subject to change and provided here for illustrative purposes only. Source: BlackRock, as of end September

19 BFM Emerging Markets Fund Portfolio Characteristics Sector Breakdown as of 30 Sep Sector Allocation (% NAV) Sector Active Allocation (% NAV) Financials 7.1% Consumer Staples, Consumer Disc, 7% 1% Energy, 8% Real Estate, 4% Materials, 6% Industrials Healthcare Real Estate 0.7% 1.6% 2.6% Energy -0.2% Financials, 30% Materials -1.8% Info Tech, 25% Info Tech -1.8% Consumer Disc -2.1% Industrials, 8% Healthcare, 5% Telecom -4.5% Consumer Staples -5.6% -12% -7% -2% 3% 8% 13% Allocations are subject to change. Weightings as of date shown and do not necessarily represent current or future portfolio holdings. Numbers may not add up to 100% due to rounding. Additional information regarding all of the underlying investments can be provided upon request. Source: BlackRock, as of end September

20 BFM Emerging Markets Fund Portfolio Characteristics Country Breakdown as of 30 Sep Country Allocation (% NAV) Country Active Allocation (% NAV) Russia 3.9% Saudi Arabia, 3% Argentina, 1% Thailand, 3% Brazil, 10% Taiwan, 6% China, 27% Brazil Saudi Arabia India 2.5% 2.3% 3.6% Russia, 8% Poland, 2% Pan-Emerging Europe, 2% Pan-Emerging Europe Korea -1.5% 1.5% Mexico, 4% Malaysia -2.4% Greece, 1% China -3.9% Korea, 13% Indonesia, 3% India, 11% Taiwan -5.9% Israel, 1% South Africa -6.0% -10% -8% -6% -4% -2% 0% 2% 4% 6% Geographic exposure relates principally to the domicile of the issuers of the securities held in the product, added together and then expressed as a percentage of the product's total holdings. However, in some instances it can reflect the country where the issuer of the securities carries out much of their business. Allocations are subject to change. Weightings as of date shown and do not necessarily represent current or future portfolio holdings. Numbers may not add up to 100% due to rounding. Source: BlackRock, as of end September Korea refers to South Korea. 21

21 BFM Emerging Markets Fund Performance Performance as of 30 Sep % 20% 15% Return 10% 5% 0% -5% 3-Month 1-Year 3-Year p.a 5-Year p.a Since PM Inception p.a BFM Emerging Markets Fund (D2 GBP) -1.1% 3.7% 20.5% 8.7% 5.3% MSCI Emerging Markets Index 0.1% 2.0% 18.1% 8.2% 4.5% The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. Risks: Overseas investment will be affected by movements in currency rates. Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore the value of these investments may be unpredictable and subject to greater variation. Important Information: Index returns are for illustrative purposes only. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Performance figures are calculated net of annual fees in GBP on a NAV price basis with income reinvested. The performance data do not take account of the commissions and costs incurred on the issue and redemption of units. The return may increase or decrease as a result of currency fluctuations. Fund inception date 30 November PM inception date 29 March Source: BlackRock. 22

22 Risks Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. The investor may not get back the amount originally invested. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time. FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY 23

23 Fund Specific Risks BFM Emerging Markets Fund Exchange Rate Risk - Overseas investment will be affected by movements in currency exchange rates. Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore the value of these investments may be unpredictable and subject to greater variation. Smaller company investments Smaller company investments are often associated with greater investment risk than those of larger company shares. Emerging Markets - Compared to more established economies, the value of investments in developing Emerging Markets may be subject to greater volatility due to differences in generally accepted accounting principles or from economic or political instability. Liquidity risk: Lower liquidity means there are insufficient buyers or sellers to allow the Fund to sell or buy investments readily. Currency risk: The Fund invests in other currencies. Changes in exchange rates will therefore affect the value of the investment. Counterparty risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss. 24

24 Important Information This material is for distribution to Professional Clients (as defined by the FCA or MiFID Rules) and Qualified Investors only and should not be relied upon by any other persons. Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: Registered in England No For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy. This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, ishares, BUILD ON BLACKROCK, SO WHAT DO I DO WITH MY MONEY and the stylized i logo are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. 25