How one emerging-market money manager is beating 99% of his peers

An emerging-market money manager who is outperforming 99% of his peers says equity investors can make money in 2024 whether the Federal Reserve cuts interest rates or not, by focusing on countries undergoing economic transformations.

Montreal-based Fiera Capital Corp. has handed holders of its EM Select Fund a 29% return in the past 12 months, beating all but 12 of the 4,383 funds in its group, according to data compiled by Bloomberg. Dominic Bokor-Ingram, who co-manages the fund with Stefan Bottcher, said the gains are coming from buying shares in under-owned markets such as Greece, Saudi Arabia and Vietnam, where policy changes are driving makeovers independent of global monetary conditions.

While Fed rate cuts would create a supportive environment for general risk-taking and spur capital flows into emerging markets, their absence won’t arrest rallies driven by such local turnaround stories, Bokor-Ingram said. He sees the key as looking beyond markets heavily weighted in MSCI Inc.’s benchmarks — such as China and India — and so reducing the correlation with index-related flows.

“Our strategy is very insensitive on a relative basis to Fed policy,” he said. “The overriding factor is domestic reforms and how they play out. For instance, if Vietnam gets MSCI emerging-market status or Greece grows its tourism because of reforms, then the Fed doesn’t matter as much.”

The Fiera Oaks EM Select Fund advanced nearly five times as much as the MSCI Emerging Markets Index’s 7% gain in 2023. This year, the fund is already up even as the benchmark gauge has fallen more than 5% for the worst start to a year since 2016.

TURNAROUND STORIES

Countries resetting their economic policies are continuing to do well in 2024, defying a broader selloff led by China’s slowdown and doubts over the timing of Fed easing.

Bokor-Ingram named three countries as his surest bets: Vietnam, Greece and Saudi Arabia — all implementing reforms and under-owned by international investors.

Vietnam, considered a frontier investment, has eyed a promotion to emerging-market status at MSCI and FTSE Russell indexes for years. While progress has been slow, economic and market-structure reforms such as an equity index overhaul may bring it closer to earning an upgrade. Improving stock trading volumes signal greater domestic retail participation and could support an eventual move, Bokor-Ingram said. The country’s equity benchmark has risen 4.6% this year after a 12% rally in 2023.

Greece’s structural reforms under Prime Minister Kyriakos Mitsotakis have won praise from global investors and the International Monetary Fund. Greek bonds will join elite indexes in 2024 after upgrades by Fitch Ratings and S&P Global Ratings last year, helping draw funds from the trillions of dollars focused on investment-grade debt. The nation’s stocks, while still classed as an emerging market, surged nearly 40% last year.

Saudi Arabia’s non-oil economic activity continues to expand, with investments planned in the semiconductor and space industries this year, following moves into electric carmaking, sports and tech startups. That’s spilling over into other countries in the region, such as the United Arab Emirates, Bokor-Ingram said. 

Meanwhile, an end to the Russia-Ukraine war may also boost the allure of eastern European stocks, he said. Other countries now on Bokor-Ingram’s radar include Argentina and Turkey.

Argentina’s Merval Index is up 20% in dollar terms this year as investors bet Javier Milei’s incoming government will rein in spending and deregulate the economy on the path toward fiscal sustainability. Bokor-Ingram said Fiera might consider investing in the country’s stocks this year, after a gap of six years, if the new president does make headway with reforms.

“The problem is, for Argentina to start to grow again, the population has to become poorer first and the wage-hike spiral has to end,” he said. “Whether the new administration of Milei has enough follow-through is something we are watching closely.”

Fiera is also beginning to look at Turkish companies again, as Ankara pursues economic orthodoxy in a reversal of years of ultra-loose monetary policy. The country has “major macro headwinds” and its foreign-exchange reserves are poor, but the policy shift has brightened the country’s outlook, he said.

Fiera’s selective strategy also includes a list of markets to avoid in 2024. Top on the list are Egypt, Nigeria, Kenya, Bangladesh and Pakistan.

Bokor-Ingram’s reasons: Conflict along the Red Sea shipping route could cut Egypt’s GDP; Nigeria’s reforms have stalled and inflation remains stubborn; Kenya’s debt problem is much worse than expected because of public-sector losses; and Pakistan faces balance-sheet stress because of a “circular debt” problem arising from unpaid energy subsidies.

“We don’t like countries that create an existential risk to our capital,” Bokor-Ingram said.

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