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Wednesday, May 22, 2024

The ‘stars are aligning’ for emerging markets this year, $10.5 billion portfolio manager says

With U.S. markets at record highs, one top money manager is looking abroad for opportunity.

Ben Kirby, co-portfolio manager of the $10.5 billion Thornburg Investment Income Builder Fund, told CNBC's "Trading Nation" in an email that the "stars are aligning" for emerging markets.

"There's a lot of opportunity, a lot of risks, but I think emerging markets are really attractive right now," Kirby added in a "Trading Nation" segment Thursday. "Emerging market cycles tend to last several years. Emerging markets have underperformed for quite a few years until last quarter, and emerging markets outperformed in a bull market. That's interesting to us, so we think we're probably at the early innings of what could be a sustained period of emerging market outperformance."

The EEM emerging markets ETF hit a multiyear high on Friday stretching back to 2007. The ETF has rallied 5% this year, exceeding the S&P 500's 2% gain. It has also outperformed the broader markets over the past three months.

China, the largest emerging market, looks attractive even as trade tensions with the U.S. remain, said Kirby. In the latest move, the Trump administration has banned Americans from holding certain Chinese stocks, such as China Mobile and China Telecom.

"The geopolitical tensions will continue because there are fundamental differences and fundamental challenges that the two countries have. But that being said, we think the tone can be better under [President-Elect Joe] Biden; the tone was pretty rough under [President Donald] Trump," said Kirby. "The reality is China grew in 2020, the only major economy to grow, and we think they're going to keep growing in 2021."

Real GDP rose by 2% in 2020, according to FactSet estimates, and is expected to rise by 8.3% in 2021 and another 5.5% in 2022. China is the largest weighting in the EEM ETF at 40% of revenue exposure.

Kirby highlights three stocks that could benefit from outperformance in the emerging markets: Brazilian airline Azul, chipmaker Taiwan Semiconductor and Indian credit card issuer SBI Card.

"If you think about the reopening trades, you think of airlines that have really been hit pretty hard. Azul is actually a quality company, they're a company with dominant market share, and many of their routes they're the sole provider," said Kirby.

Taiwan Semiconductor, he says, is a growth play on the tech boom, and SBI Card should benefit from greater credit card adoption in India.

SBI Card and Taiwan Semiconductor have both rallied this week, up 13% and 10%, respectively. Azul has fallen 11%.

Disclosure: Thornburg holds Azul, Taiwan Semiconductor and SBI Card.


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