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Buy Opportunity

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Buy Opportunity?
Is the emerging market selloff a buying opportunity?

Text Size Published: Monday, 3 Feb 2014 | 11:36 PM ETBy: Leslie Shaffer | Writer for
CNBC.comTwitter31LinkedIn3ShareShould you be buying emerging markets?Monday, 3 Feb 2014 |
5:47 PM ETRuss Koesterich, Global Chief Investment Strategist at BlackRock, thinks the recent selloff
in emerging markets presents a long-term buying opportunity for investors.The emerging market
selloff has left many wondering whether it's time to bottom fish or if they should just toss the small
fry back.By any measure, emerging markets have had a bad month, with investors pulling around
$12.2 billion out of emerging market equity funds in January, according to EPFR data.But the market
drops have also left shares at what could be attractive valuations—if worries ranging from some
countries' high current account deficits and slowing growth in China don't presage a full-blown crisis,
similar to 1997's contagion across emerging markets.(Read more: What happens in EM stays there,
mostly: Goldman)"There are some problem children and there are some instances where you do
have some serious concerns, such as Turkey," Russ Koesterich, global chief investment strategist at
BlackRock, told CNBC. "But by and large, EM looks better: Less dollar-denominated debt, higher
foreign exchange reserves," he said.Michael Grabois | Flickr | Getty Images"It can always get worse
but I would take issue with the notion that it has not been fully discounted," he added. "There's
already been a very significant correction in emerging markets relative to developed markets," with
emerging market equities trading at a 40 percent discount to their developed market peers. "That is
the single largest discount we've seen since the financial crisis. So I would argue that a lot bad news
already appears reflected in the price," Koesterich said.(Read more: The 3 culprits behind the
emerging markets rout)Others think the view is more complex than a simple value
equation."Emerging markets do offer a bit of value relative to developed markets now," with fund
outflows bringing shares to levels that have historically suggested emerging markets can outperform
developed markets on a 12-month horizon, Michael Kurtz, global head of equity strategy at Nomura,
told CNBC.Play VideoEMs may be cheap, but watch out for this factorMichael Kurtz, Global Head of
Equity Strategy at Nomura, says emerging market valuations look attractive compared to developed
markets but he warns of a "secular decline.""But we also see evidence that there's been something
of a secular decline in terms of both the GDP (gross domestic product) growth advantage that the
emerging markets have been delivering over the developed markets over the past 10 to 15 years,"
Kurtz said, adding emerging markets have also seen their earnings growth advantage erode.(Read
more: Why you don't need to cry over Argentina)If emerging markets are facing a secular slowdown,
then investors may not be able to capture the shares' "cheapness," he said.He believes investors
need to start differentiating the segment on a country-by-country basis. Some think the time just
isn't yet right to pounce on the selloff."EM assets are in cheap territory," Gary Dugan, chief
investment officer for Asia and the Middle East at private bank Coutts, said in a note. "However, we
accept that markets may get cheaper before they bottom out."(Read more: Why pros are dismissing
the emerging market crisis)Coutts is keeping a neutral view on emerging markets while waiting for a
deeper selloff. "The recent volatility argues for even greater patience and waiting for more serious
downside or capitulation before buying."—By CNBC's Leslie Shaffer. Follow her on
Twitter @LeslieShaffer1Twitter31LinkedIn3Share Print Email

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