Wealth Manager - the site for professional investment managers

WM - Wealth Manager
Register free for our breaking news email alerts with analysis and cutting edge commentary from our award winning team. Registration only takes a minute.

MarketEye: State of decay: Does government control erode EM value?

By Naomi Waistell, portfolio manager Emerging and Asian equity team. Newton Investment Management – a BNY Mellon Company

Working to achieve gender parity should be on the agenda of all investors, not just those with a social impact focus.

You can sign-up to receive weekly MarketEye updates at www.bnymellonmarketeye.com

In more developed markets, concern over state intervention centres around central bank policymaking. While that is of course highly relevant across emerging markets too, there is in fact an even larger state-led consideration when investing in these markets: the fact that c.23% of the MSCI Emerging Markets index is comprised of state-owned enterprises (SOEs).

The majority of these companies are not run with profit-maximising intention. They tend to be strategic state assets such as banks, or utility and resources companies, with heavy capital-expenditure burdens. This tends to make them poor stock investments over the long term, though a major commodity bull market can change the optics temporarily. Return on equity (ROE) is usually less important than other strategic desires of the state in capital-allocation decisions.

State ownership can provide stability, but this may involve significant shareholder value dilution, as minority investors tend to be a low priority in stressed situations or in capital-allocation decisions. Interestingly, we saw such dilution with many Western banks following the global financial crisis, and emerging-market companies are perhaps even less likely to focus on shareholder value in such situations.

We currently take zero exposure to SOEs and find the technology, consumer and health-care sectors are relatively free from state control and are where we find the most interesting investment opportunities.

Effective on January 31, 2018, The Boston Company Asset Management, LLC (TBCAM) and Standish Mellon Asset Management LLC (Standish) merged into Mellon Capital Management Corporation (Mellon Capital), which immediately changed its name to BNY Mellon Asset Management North America Corporation. Standish, Mellon Capital and The Boston Company are brands of BNY Mellon Asset Management North America Corporation.

This blog is not intended for retail investors. 

Any views and opinions are those of the author, unless otherwise noted and is not investment advice.

BNY Mellon take no responsibility, nor endorse any comments from  third-parties which contain links to external websites outside of those of BNY Mellon.

Furthermore, this material does not constitute an offer or invitation to anyone in any jurisdiction to invest in any BNY Mellon product or use any BNY Mellon services where such offer or invitation is not lawful, or in which the person making such offer or invitation is not qualified to do so, nor has it been prepared in connection with any such offer or invitation.

BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the corporation as a whole or its various subsidiaries.

This information has been prepared and approved by BNY Mellon Investment Management EMEA Limited. Issued in UK and Europe (excluding Switzerland) by BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority.  Issued in Switzerland by BNY Mellon Investments Switzerland GmbH, Talacker 29, CH-8001 Zürich, Switzerland. Authorised and regulated by the FINMA.

All information contained in this material is current at the time of issue and, to the best of our knowledge, accurate.

© 2018. BNY Mellon Investment Management EMEA Limited. All rights reserved.

This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from BNY Mellon. It is delivered on an “as is” basis without warranty. Click here for the full terms and conditions of use. BNY Mellon is committed to collect and store your details in a responsible way.  For details on our data collection and privacy policy, please refer to Privacy Policy. WEB01105, expires 16 August 2019.

This article was provided by BNY Mellon Investment Management and does not necessarily reflect the views of Citywire

Share this story

Share this story


Top stories

Read More