Emma Wall: Hello, and welcome to the Morningstar series, 'Why Should I Invest With You?' I'm Emma Wall and here with me today is the manager of the JPMorgan Global Emerging Markets Income Trust (JEMI), Omar Negyal.
Omar Negyal: Hello.
Wall: So, last week we've seen the conclusion of the third plenary in China, and the markets have actually reacted negatively to that. What's going on over there?
Negyal: Well, I think, it's probably a little bit harsh for the markets to judge that so quickly. We've just seen the first general communique from there, and we will see many more details coming out.
Our view is that in the medium term, we could see some positive developments here because I think we will be getting more of a push towards the private sector, less reliance on the state to drive the economy. But I think that's a very long-term development for China.
Wall: But you have downgraded your own personal forecast for growth in China. Haven't you?
Negyal: I think, it's fair to say that we're not going to see the years that we've seen before of up to 10 plus percent growth in China where we're going to have a lower number than that going forward. But from my perspective, from an investment perspective, the key thing isn't really the GDP growth of China. It's really about the companies that we can invest in and whether we can find attractive individual stocks. And I think there are a number of these today in the Chinese market and the market looks actually quite cheap today from an investment viewpoint.
Wall: Looking more broadly then across the emerging market sector, it has been a difficult six months ever since Ben Bernanke announced that he was going to start to taper QE. That hasn't actually come through yet, but this whole time, markets have been very jittery in emerging markets. Do you think when tapering does begin we will see outflows?
Negyal: I think it's fair to say that emerging market has had a tough six months. Because of that, I would describe it as a dress rehearsal for what’s really going to happen next. I think the key is we're unlikely to be as surprised when it really comes through that first announcement, which happened in May.
So I wouldn't expect to see the same level of negative reaction as before. What we have seen is some weakness in certain currencies in emerging markets and that's certainly still been the case. But to me that has really acted as a kind of safety valve for emerging markets. And so I don't see a very negative story coming through.
Wall: So that it just could be a short-term thing, but long-term not a massive deal?
Negyal: Yes, I think emerging markets has enough strength internally to get through that.
Wall: Looking then at that specifically, I know that one country that has been affected by this currency weakness is South Africa, a region that you have quite a strong conviction on. Why is that?
Negyal: It really boils down to the companies in South Africa, and we really see across a broad swathe of industries very, very good companies with very mature management, which is something that we really concentrate on.
I think it's fair to say that South Africa has a weaker currency. It generally had a – the rand has been a weaker currency. But if you look over the years, even with that weaker currency, investing in South African equities has actually provided very good returns despite the weak currency. That's because of the strength of the companies.
Wall: And those companies are not purely domestically focused, are they? They're able to offer revenues throughout the African region.
Negyal: That's right. I mean, South Africa still is for many of them the dominant area, but a lot of them have growth opportunities in Sub-Saharan Africa and that's very exciting for us.
Wall: Omar, thank you very much.
Negyal: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
