It's been a tough year for investors in emerging markets. The MSCI Emerging Markets Index is down nearly 10% over the last year and 6.6% over five. The sell-off has thrown up some tempting valuations among FTSE 100 companies exposed to the sector and bold contrarians may consider now the ideal time to buy.
More Aberdeen Anguish
Fund manager Aberdeen Asset Management(LSE: ADN) specialises in emerging markets and reaped the rewards during the BRICs heyday. Investors aren't feeling so amorous now, with the share down 38% in the last year. Aberdeen's customers aren't happy either. Many have tired of losing money on their global emerging markets funds, with net outflows totalling £9.1bn in the three months to 31 December. Still, that was better than the £12.7bn exodus three months earlier.
Aberdeen isn't flying the white flag. It actually boosted overall assets under management from £283.7bn to £290.6n, helped by favourable markets and £8.5bn of acquisitions, but then came January's shellacking. It's likely to have suffered more net outflows in January as Investment Association figures show global equity funds (including emerging markets) suffered their highest net retail outflow on record at £272m.
Trading at 9.17 times earnings, you might consider that these risks are in the price. Yielding 6.94%, you might also think the income worth the risk. Especially since management raised the final dividend by 6.7% in November, suggesting durability. Aberdeen looks tempting for emerging market bulls, terrifying for bears.
Banco Santander(LSE: BNC) earns a fifth of its revenues from Brazil which doesn't look so attractive with MSCI Brazil down 55% over five years. European diversification has failed to offset Santander's emerging market miseries, with the share price down 27.5% over 12 months and 53% over five, despite recent signs of positive life.
Yet its full-year figures were better than this share price performance suggests, as Santander shrugged off Brazilian worries to post impressive 33% full-year growth in attributable profits to EUR1.63bn. The UK is its biggest market and here full-year profits rose 14% to EUR1.97bn, while Spain delivered 18% growth to EUR997m. Strong underlying performance and a bolstered balance sheet also speak in Santander's favour. Trading at 8.98 times earnings now could be a good time to buy and hold for the long-term, despite the disappointing yield of just 2.12%. Earnings per share (EPS) are forecast to fall again this year but rise 9% in 2017, rewarding patient investors.
Standard Chartered(LSE: STAN) is down a whopping 49% over the past five years as Asia stumbles and management loses its way. Last month it reported an 84% fall in 2015 underlying profits to $0.8bn, a 15% decline in income and an 87% increase in bad debt charges. Moody's has subsequently downgraded its long-term debt rating on the stock warning that profitability would remain weak over the next two years as its markets would become even more challenging.
Standard Chartered's management is working to restore profitability, reduce its credit risk and exit less profitable markets but all this will take time. If you have the patience to sit through the strategic overhaul you could be rewarded, but as we have seen lately, turning round struggling banks can take years.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Aberdeen Asset Management. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.