Leading Fund Manager sees flow from Europe to Emerging Markets
The European stock market is actually more volatile than emerging markets, said Amundi’s deputy global head of equities, Alexandre Drabowicz. The perception remains that emerging market (EM) equities are more volatile, yet when comparing the volatility of the MSCI Emerging Markets Index versus MSCI Europe for the past year, the latter actually has higher volatility, he said. “It’s not to say emerging markets are safe havens. But the perception of investors is that emerging markets might be a more suitable place to invest than Europe. In EM, there are more specific risks, such as a military coup in Turkey, whereas in Europe, there are more macro risks.”
European equity funds have seen net outflows for the past nine months, with nearly $90bn being pulled out in 2016, according to data from Bank of America Merrill Lynch. “People have apparently forgotten about Brexit,” Drabowicz said. “But it’s going to come back to the table for sure,” he said.
Other political risks include Spain, where a majority government still cannot be formed after two general elections this year; Italy’s referendum in December has not helped; as well as presidential elections in France and Germany this year. These factors will translate to market spikes and increasing volatility from time to time, he said. Still, some European stocks offer a dividend yield of about 4%, which is the highest in developed markets, he noted. When considering EM and earnings in emerging markets, he looks for companies driven by growing domestic demand, rather than those supported by improving external trade data and commodity prices. “In terms of the P/E ratio, the price (of EM equities) has been cheap. What we’re looking for is companies with earnings improvements.”
Drabowicz expected average EM earnings growth to be in the high single digits in 2017. Hence, dividends are not a priority when looking at EM markets, he noted. “We are not expecting double-digit growth, but what we will see is companies that are more stable, with solid balance sheets.”

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