01-12-2021 · 訪談

Talk ’22: ‘We look for unexpected beauties rather than the usual suspects’

Emerging market equities can catch up with their developed world counterparts as tapering starts in 2022, says Wim-Hein Pals. In our 2022 outlook interview series, Robeco’s experts answer five key questions about their investing arenas.


  • Wim-Hein Pals - Head of Emerging Markets team

    Wim-Hein Pals

    Head of Emerging Markets team

What is the big thing to watch in 2022?

After the ultra-loose monetary policies across the developed world, next year will be different. The big thing to watch in 2022 will be the hikes in US interest rates by the Federal Reserve that we might see in the second half of 2022. After the end of the tapering somewhere in the summer, we will most likely enter a new hiking cycle in the US. A hiking cycle which is caused by resilient economic growth is typically a good sign for emerging markets equities. Inflation should be transitory as many observers – including the Fed – predict.

An era of growth-inspired monetary tightening is typically supportive for ‘value’ asset classes and value stocks. So, after a period of underperformance relative to developed markets, emerging markets equities might start to perform better than their developed counterparts. In the last couple of years, emerging markets equities have discounted a lot of negative news, whereas developed markets continuously translated good news into all-time highs for equity markets. The good news came from re-opening after the pandemic and strong earnings results in both developed and emerging markets, though emerging markets have traded flat so far in 2021. The resulting derating has led to a price/earnings ratio for the MSCI EM Index of close to 12 times 2022 EPS, while the MSCI World Index trades at an average PE ratio of 18 times expected 2022 EPS.

Emerging equities seem to have fully anticipated the upcoming tapering. What’s different from the tapering period that began in the second half of 2013 is that emerging countries have already started their monetary tightening ahead of the US Fed. In this regard, EM is leading DM. EM is tightening, whereas DM central banks are still expanding their balance sheets.

So, emerging equities seem to be ready for the US tapering after the disappointing post-pandemic equity rally in the developing part of the financial markets. In short, emerging markets have only incorporated the bad news in today’s share prices, whereas developed markets have only discounted the good news in their equities.

Robeco’s fundamental EM portfolios do have a tilt towards value characteristics, so that might act like a double whammy in terms of alpha generation for our clients: a focus on value within a value asset class.

What is the biggest change you have seen since Covid-19 kicked in, that has a lasting impact, also into 2022?

A couple of things have changed since Covid-19 kicked in, such as travelling less frequently by plane or cars with internal combustion engines, travelling more on bikes and electric scooters, more working from home and thus the need for smaller offices. Some of these changes will have long-lasting implications for whole sectors and stocks. Airlines might have seen their peak levels of business travelling in 2019. Manufacturers of (electric) bicycles might do very well in 2022 and beyond. More and more companies will structurally reduce their travel budgets and hand out specific carbon targets to their employees.

The pandemic has accelerated the trend towards a greater focus on ESG across all organizations and countries. The general attention to the energy transition and climate change has grown and will not slow down. On the contrary: green sectors and sustainable business models will prosper in the years to come. So, future-proof portfolios in emerging markets should have a structural exposure to solar names, cleaner forms of transportation, and energy storage solutions.

What has been accelerated by the pandemic and people’s increased awareness will only accelerate further in 2022. China, South Korea and Taiwan need special attention here from an EM portfolio manager. Robeco Emerging Markets Equites has a lot of exposure to the ’new sectors’ and technology-related companies in countries, such as China, South Korea and Taiwan.

As we saw in 2021, we will witness selective Covid-19 outbreaks across the globe in 2022, but it will have less of an impact on real economies and company earnings. The supply chain disruptions we are seeing today in sectors such as semiconductors and container shipping might continue well into 2022, so here, stock selection also remains key. Some of the state-of-the-art technology hardware companies in emerging Asia for instance might do very well, earnings wise.

Where are you most out of consensus with your approach/vision/portfolio strategy?

With our value-tilted EM portfolios, we are out of consensus. Most of our peers fish in the ’growth pond’, partly driven by the popularity of growth stories in Chinese internet and Indian consumption. After a decade in which growth sectors and growth stocks substantially outperformed their value counterparts, it might be time for value to make a comeback. The divergence in valuation of growth stocks and value stocks in EM has not been as wide as is currently the case. We have seen some signs of value outperforming growth in emerging equities this year, but nothing compared to the significant underperformance in the previous decade.

It is this huge gap in performance and in underlying valuations that makes me positive for our fundamental EM strategies in 2022. The valuation gap is simply not sustainable in the long run, and either way, value should make a more durable comeback in the years to come.

Maybe 2022 will seriously challenge the style leadership going forward. After the growth decade of 2010-2020, we might have entered a new ‘emerging’ and ’value’ decade of 2021-2031. I witness more and more industry experts questioning the price/earnings multiple in sectors such as Chinese internet, Brazilian fintech or Indian consumer staples. I would rather invest in a company that trades at 10 times its 2021 earnings per share with a steady earnings growth of 15% than a company that trades at 30 times its 2021 earnings per share with a potential earnings growth of 35%. The downside risk in the latter stock if its high growth expectations are not met is significantly higher. A derating might be on the cards for the expensive defensives.


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What is the biggest ‘external’ challenge or game changer in 2022 (think of government policies, regulations, central bank policies, inflation, etc)

The biggest external challenge in 2022 in my opinion is going to be the upcoming tighter regulation with regards to the internet companies in the Western world, i.e. in the US and Europe. In this aspect, EM has been leading DM as well. Think of the Chinese regulation in its internet, e-commerce, education and gaming sectors. Under the common denominator of common prosperity, the Chinese regulators have been harsh towards the companies in that space in 2021. Also in South Korea and other parts of EM, regulators have ordered the companies active in the internet, games and e-commerce sectors to respect the rights of their customers.

The defective monopolistic circumstances have been broken down in emerging markets and in some cases they had to pay huge fines or spend money for the national benefit. We have seen some regulation and fines imposed on their developed market peers, but relatively speaking nothing of the level seen in emerging markets has happened in the rich nations so far. I do expect a catch-up from regulators in developed countries. That could mean more pressure on their margins going forward and a subsequent lower valuation multiple. At the same time, their emerging counterparts did already suffer in 2021 from an earnings viewpoint and should be relatively resilient as far as their earnings and share prices are concerned.

What is your personal ambition/inspiration that’ll help you navigate through 2022?

Deviation from the herd is my personal inspiration, particularly in 2022. With our value-tilted and cautious pioneering approaches, we will try to be smarter than the competition in that we are looking for ‘unexpected beauties’ instead of the ’usual suspects’. With the help of our unique screening tools and in-depth fundamental analyses, we will find alpha opportunities in green sectors, and in those areas that help the poorest people in developing countries, with an eye on the Sustainable Development Goals as well. Companies that are well managed, well positioned to benefit from the abovementioned characteristics, and with a strong balance sheet should outperform in an environment of declining monetary support in the world, with a more critical view taken of very high valuation parameters.

Personally, I do not subscribe to the currently popular ’stagflation scenario’, but rather believe in a strong capex-driven economic growth scenario after the ’easy’ economic rebound from the pandemic ruins. I do expect higher yields on US Treasuries, which is growth inspired. A growth-inspired steepening of the yield curve bodes well for EM in general, and for our EM value-tilted approach in particular. In my ‘ample economic growth' scenario, growth is obviously no longer a scarcity, and more and more investors will think twice before paying too much of a valuation premium for the so-called popular growth companies.

In all, 2022 will be another unique investment year with different winners and different laggards from a relative performance viewpoint. Some of the winners of the last couple of years will become laggards in 2022, and some of the laggards will become winners. Selectivity remains key in this fascinating hunt for returns for our clients. That selectivity goes for countries, as well as for specific sectors and stocks. I wish you a great return for your portfolio in 2022.


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