By Aaron Saldanha and Divya Chowdhury
(Reuters) - Broad weakness in emerging stocks and volatility stemming from U.S. election uncertainty have created value opportunities in developing markets, a client portfolio manager at fund house Eastspring Investments said.
Samuel Bentley told the Reuters Global Markets Forum on Tuesday his fund was considering increasing exposure to South Korea, Mexico and South Africa.
"U.S. elections are typically a volatile time for emerging markets, and so we expect some good opportunities to top up this year," said Bentley, whose firm prefers to assess political impact on company earnings over hedging event-risk.
(Graphic: Emerging markets in 2020, Country indices - https://fingfx.thomsonreuters.com/gfx/gmf/dgkvlbqddvb/Emerging%20markets_country%20indices_2020_.png)
Bentley expects U.S.-China relations to improve after the Nov. 3 election, which he said will drive the dollar lower. (DXY)
"We see a weaker dollar and progress on a COVID-19 vaccine as positives for emerging markets."
The dollar (=USD) lost 3% in the third quarter, which will be its worst since mid-2017, but it gained 3% in the month of September.
Eastspring, a unit of insurer Prudential plc (L:PRU) and which manages assets worth $220 billion, is bullish on emerging financials, energy, industrial and technology hardware stocks, Bentley said.
(Graphic: Rebased performance of select EM stocks benchmarks, Year to Sept. 28 - https://fingfx.thomsonreuters.com/gfx/mkt/ygdpzkjwbvw/Rebased%20performance%20of%20select%20EM%20stocks%20benchmarks.png)
South Korea, which has the second-largest weighting in Eastspring's portfolio at about 15%, presents opportunities across sectors, Bentley said.
China, to which Eastspring has allocated 35% of its portfolio, provides "stock-specific opportunities outside expensive e-commerce," he said.
Eastspring cut exposure to Taiwan after some local tech stocks performed well, Bentley said.
It has raised its investments in South Africa, "where investors may tend to overlook (opportunities) given the unfavourable news headlines", he said.
It is now looking to buy more Indian stocks too.
"We have been underweight (on India) outside a few interesting financial and IT names. But recent weakness has put a few names on our radar."