Why emerging markets are the place to be

CIO discusses asset allocation, the loonie and why investors must maintain a world view

Why emerging markets are the place to be

Investors would be well served to look at their emerging markets exposure now the new administration have their feet under the table in the White House.

Sadiq Adatia, Chief Investment Officer, SLGI Asset Management Inc, assessed the current investment landscape in part one of his interview with WP. In part two he focused on asset allocation, which he said will remain vital in 2021.

SLGI’s position is overweight equities; ready to buy more if there’s a further pullback. Adatia added that as much as he likes growth, a strategy that has worked well, he expects this year to be the story of “something other than technology”, which could be triggered by the reopening of certain trades. He added: “We still like [tech] so we’re not going to go the complete opposite, we’re just slightly underweight at this moment, and we do also think that other markets around the world are going to start to play a little catch-up.”

His favourite area right now, though, are emerging markets. The virus is behind them, and they’ve done the best job of containing it, he said. Subsequently, some of their economies are moving faster than other economies and he expects global trade to be calmer under a Biden administration.

He said: “Emerging markets are the place you want to be. We’re even seeing capital flow going in there, which we haven’t seen for many years prior. That means we do expect to see that market do a little bit better, and potentially other markets, like international and Canada, could play catch-up.

“We’ve reduced our U.S. exposure, although we are still favouring U.S. value, and are moving some of that to areas where we are more underweight, like Canada and international, but more so emerging markets, and also to some of the global mid- and small-cap names as well.”

Adatia also expects to see more of an appreciation of the Canadian dollar versus of the U.S dollar, although that will likely be the result of the latter weakening. Canada, he added, has a few things going for it. It has strong financial and energy sectors that should benefit from the recovery, and it also has a big metals and mining space, which bodes well from a global-demand perspective.

“I wouldn’t say there’s a lot of growth in Canada but you don’t want to be underweight either. If we do get volatility, Canada should again hold up relatively well.

“More broadly, you want to be looking around the world for different segments that are making sense but be cautious of the currency because if you're investing in the U.S., and it's depreciating, that’s going to impact returns. [It makes sense] to hedge or look for other opportunities where you know the currency may not be as much of a detractor going forward.”