Defensive Stocks Not the Safe Bets You Think in Emerging Markets
- Causeway prefers emerging oil refiners to food and drug stocks
- Non-cyclical equities trade at 91% premium to cyclical peers
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A word of advice for emerging-market investors looking for refuge as China’s economy sours and U.S. rates are heading up. Don’t just go down the route of defensive stocks, says Joe Gubler, who oversees $2 billion at Causeway Capital Management in Los Angeles.
Here’s why: The price-to-earnings ratio of stocks that tend to hold up better in an economic downturn -- such as food and beverage companies as well as health-care providers -- traded at a 91 percent premium to their cyclical peers on the MSCI Emerging Markets Index in September, the biggest gap since 2008.