Fund sees gains in emerging markets - but not Poland

Fund manager F&C Management Ltd said last week it had built up strong positions in Russian, Brazilian, Mexican and Chinese shares in anticipation of further big gains in emerging market stocks. But in Poland, F&C believes those fund managers who are betting on European Union accession in 2004/5 are far too optimistic and say that government interference in companies has created a situation where there is little value. "I think there is a good probability it (accession) is not 2004-5 but 2008-9. We are very negative," said F&C director Jeff Chowdry. "Every single layer of corporate life in Poland you get interference." "We do not think they are going to deliver … When everyone has gone, they are going to be sitting on $20 billion of IMF debt," he said. The company, which manages $102.5 billion of funds including $5.2 billion in emerging market assets, predicted that those markets would substantially outperform developed markets.

Cheap valuations and strong earnings should propel markets further after a 12% gain so far this year, as measured in dollar terms by the Morgan Stanley Capital International Emerging Markets Free Index (MSCI EMF), F&C said. "We could expect another 20-30% over the next 12-18 months," fund manager Nick Timberlake told a press briefing. Emerging market companies are expected to see 30% earnings growth in 2002 and 25% growth in 2003, compared with just 14.3% for S&P 500 companies in 2002 and 20.7% in 2003. Yet valuations remain cheap with the emerging markets universe trading on 12.6 times 2002 earnings and 10 times 2003, compared with 21.7 and 18 times respectively for the S&P 500. F&C's top picks are China at 8.3% of the portfolio vs. 6.5% in the MSCI EMF, Thailand at 3.4% vs. 1.3% in the benchmark, Brazil at 11% vs. 8.5%, Mexico at 12.4% vs. 9.3% and Russia with 9.6% vs. 6.4%. Poland is 0.7% of the portfolio vs. 1.2%. To finance the overweight allocations, F&C has big underweight positions in Poland, Turkey, Israel and India. - Reuters