Emerging Market Equities a `Buy' Compared to Other Assets, Old Mutual Says

The Old Mutual Investment Group of South Africa, the money manager owned by Old Mutual Plc, said emerging-market equities are a “buy” compared to the low returns offered by other asset classes.

“When we look at current valuations we find that emerging markets are still trading at a discount to developed markets, even when you consider the risk,” Peter Brooke, head of macro strategy investments at Omigsa, as it’s known, said in prepared remarks for a conference in Johannesburg today. “I’ve been increasing the emerging-market equity exposure in the funds I manage where possible, and see this asset class as a ‘buy’.”

Fourteen of the 19 emerging-market bourses tracked by Bloomberg have shown a positive return this year while developed markets, including France, the U.S. and Japan, are showing a decline. Stocks in developed markets have suffered in the past two years amid the global financial crisis, European debt problems and the subsequent bank stress tests.

Investors from developed countries searching for returns are already looking at assets like South African government bonds, ignoring the higher political risk, according to Brooke. Foreign investors bought 5.03 billion rand ($684 million) of bonds last week, JSE Ltd. data shows, with bond purchases double those in 2009.

“When inflation becomes a more serious threat, history has shown that it’s much better to be in equities than in bonds, and dividend payouts provide more reliable protection over time than cash,” Brooke said. “Investors who are comfortable with some equity risk should consider including funds focusing on high dividend-yielding shares in their portfolio.”

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

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