The manager of Murray International explains why emerging markets are a better place to invest versus developed markets over the next five to 10 years.
The growth wave will continue its momentum in 2021, with emerging markets and Asia offering the best opportunities, predicts Bruce Stout, manager of the Murray International (LSE:MYI), which is a member of interactive investor’s Super 60 list.
More than half of the £1.5 billion portfolio is currently invested in these two areas, where Stout sees the strongest growth potential for at least the next five to 10 years.
He argues that many businesses will be able to get closer to operating normally again next year because they provide essential services and commodities to consumers. “It is towards those types of growth companies that we're looking at the moment because I think that's where the best opportunities are, particularly in Asia and emerging markets,” says Stout.
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Part of the reason these areas could perform strongly is that Asia, for example, will not have the same level of public sector debt that will be seen in the developed world as governments try to spend their way out of the pandemic. Individuals and corporations will be on the hook when the bill comes due, paying for it in the form of higher taxes.
“So there is a drag for growth prospects in the developed world that just isn't there in Asia and emerging markets to the same extent,” says Stout. “That tailwind should be beneficial as we go forward.”
The manager notes that stock market performance has been highly concentrated over the last 12 months, with a handful of winners in technology and ecommerce delivering the lion’s share of returns. A “huge valuation gap” still exists between the handful of businesses that have done well and the large number of quality companies that have lagged, Stout says. “People are totally ignoring things like oil and gas, commodities, transport and tourism, as if we’re never going to need those again. That valuation gap looks quite interesting for next year.”
Going against the current market concentration, Murray International aims to be widely diversified, with more than 25 countries and 60 businesses represented in the portfolio as it aims for both income and capital growth.
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In terms of portfolio activity, one example of a new position opened last year is Globalwafers, a Taiwanese company that is one of the world’s leading manufacturers of silicon wafers, which are used in semi-conductors. Stout points to the company’s growth profile, achieved both organically and through acquisitions, as well as its strong profitability and cash flows, which enable it to pay out an above-average dividend to shareholders.
Murray International is one of interactive investor’s Super 60 picks. The trust pays a market-beating yield, currently 5.9%. We like its focus on Asia Pacific and emerging market companies rather than just the UK, US and Europe, which sets it apart from other global equity income funds and trusts, which tend to mainly stick to developed markets.
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