Given that everything is pivoting at once, he added, “it’s actually quite a fertile environment for Chinese stocks, where you have policy support, regulatory easing, and lockdowns ended – or at least ending in their severity. So, I think China would be our favourite play in all of EM right now.”
Latin America is Kletz’s second choice right now, even though “some of the performance advantage that they had enjoyed year-to-date has been pretty heavily eroded by the downturn in commodity prices.” He noted that we’ve entered a more positive commodity cycle, particularly for industrial metals, which Latin America heavily exports. Valuations have been extremely low relative to historical norms, which has also pushed up dividend yields, but staying aligned with Latin America also aligns them with the industrial metal overweight.
“We view it as a medium-to-long term story. It’s pretty attractive on a risk-adjusted basis, just because your starting point on valuations is already quite low. So, that does help de-risk some of the downside potential on this story, as well.”
Kletz also noted that China and Latin America are connected, too, “because as China does boost its economic activity, especially coming out of lockdown, that should also provide a demand source for some of what these Latin American economies produce, which is commodities.”
Kletz is recommending that advisors wanting to reposition portfolios could follow Forstrong’s lead, which is to “start to take advantage of some of these opportunities and progressively move further into them over time.
