An Emerging-Market Equity Bull Puts His Money Where His Mouth Is

(Bloomberg) -- Emerging-market securities have Rob Mumford so bullish that he's invested more than half of his personal wealth in the assets.

The Hong Kong-based fund manager at GAM Investments says the MSCI Emerging Markets Index could double in value by 2023 as economic growth in the developing world improves and the Federal Reserve stays dovish. China, India and Brazil will contribute most to the gains, said Mumford, who will take charge of the firm's China and Asian equity funds in the coming months.

“We see compound returns in EM in the double-digit range” in a base case where growth is stable, while the gauge may double in a bull scenario, Mumford said in an interview on April 11 during a visit to Singapore. “China has now become too big as a destination investment to ignore.”

The 48 year-old investor, who has 57 percent of his personal wealth in emerging funds, will oversee some $440 million in Chinese stocks pending regulatory approval and will help handle $1 billion that his colleagues manage in developing equities. His top bets include technology companies, chipmakers and consumer firms ranging from education to travel.

In Mumford's bull case scenario for the next few years, emerging-market stocks may narrow their valuation discount to developed on stronger growth, an improvement in credit quality and higher capital flows. Emerging markets could even trade at a premium to developed within five years, he said.

Earnings growth compounding at 15 percent per year, an annual dividend yield of 3 percent and a price-to-earnings ratio expanding to 15 to 16 times can easily double returns in the MSCI gauge, he said.

IMF Support

Optimism around developing-market equities got a boost after the International Monetary Fund said last week it sees emerging markets as a “bright spot,” even as the fund lowered its global growth outlook to 3.3 percent for 2019 from a forecast of 3.5 percent in January, Mumford said.

Mumford said he's confident about Asian equities on China and India's increasing younger population and rising middle class. In addition, the growing internationalization of capital markets in China, plus its inclusion in equity and bond gauges, bodes well for stocks, he said.

Even a recession or slower growth in the U.S. won't alter his bullish view, Mumford said, adding that the IMF has pointed out that policy responses in emerging markets, most notably in China, are enough to stabilize the slowdown. However, the one thing that could temper his optimism would be a negative outcome on U.S.-China trade talks.

“Clearly the trade war is one of the major overhangs,” Mumford said. “But I think we are fairly confident in the next couple of months that we are going to see a substantive agreement.”

To contact the reporters on this story: Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net;Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Naoto Hosoda, Kurt Schussler