Jakarta. Global investment fund Franklin Templeton Investments stands by a rosy outlook for emerging markets next year with Indonesian assets remaining high on the fund's shopping list.
According to the fund, emerging markets' economic growth is robust and accelerating, which could help them navigate the expected short-term market volatility induced by interest rate increase in the US, Donald Trump's presidency, UK’s progress toward leaving the European Union, or commodity-price swings.
"Emerging-market countries are still far behind their developed-market counterparts when it comes to overall GDP-per-capita, and so we continue to expect strong growth prospects over the long term," Mark Mobius and Stephen H. Dover — the executive chairman and the chief investment officer at Templeton Emerging Markets Group, a unit of Franklin Templeton Investments that manages about $23 billion in emerging market assets — said.
Additionally, Mobius and Dover are of the opinion that external balances in the emerging markets have stabilized, with current accounts in most manufacturing-based countries back to surplus, and deficits of commodity-exporting countries narrowing.
"The debt-to-GDP ratios of emerging-market countries are generally below those of developed markets, providing a more stable and, we believe, sustainable economic foundation," they wrote.
"Finally, interest-rate differentials between the two groups are wide, giving emerging-market central banks greater flexibility to maneuver, if required, in the future."
Mobius and Dover also believed that emerging market stocks are now undervalued compared to their global counterparts, noting that MSCI Emerging Markets Index now traded at more than 20 percent discount to the MSCI World Index on a price-to-earnings-multiple basis.
The emerging market mavens said that stocks in consumer-related and information technology sectors are attractive choice in the emerging markets, as they allow investors to tap into the burgeoning consumer class and competitive emerging markets.
"Elsewhere, select commodity shares remain attractively valued, in our view, even though oil prices, for example, are currently significantly above their 2016 lows," they wrote.
In the $4.8 billion Templeton Asian Growth Fund, Indonesia accounted for 14.5 percent of the holdings, after China (27.9 percent) and Thailand (22.4 percent). Bank Rakyat Indonesia, Bank Danamon Indonesia and Astra International are also among the fund's top ten holding companies.
"Indonesia is also a strong example of the resiliency in specific emerging markets. We saw commodity prices collapse, trade volumes decline and China’s growth moderate, yet Indonesia has still been growing at 5 percent, with a balanced current account when including foreign direct investment," Michael Hasenstab, chief investment officer at Templeton Global Macro, wrote.
Hasenstab said massive depreciations in emerging market currencies in 2016 did not cause solvency issues in countries like Indonesia or Malaysia.
"Twenty years ago, it may have been more difficult for many of these countries to weather a protectionist trade shock, a commodity price shock and an exchange rate shock all at the same time. Yet today these countries are in much stronger positions to handle these types of macro shifts and changes to global trade policies," he said.
A failure in Trans-Pacific Partnership, a trade partnership that president-elect Donald Trump wished the US to withdraw from, also would have little effect on Indonesia.
"Indonesia was strong without the TPP and is not dependent on an enhanced trade agreement to continue doing well. Markets have tended to follow the headline impact of trade policy rhetoric, in our opinion, yet the underlying fundamentals tell a much stronger story," Hasenstab said.