Emerging markets
Dead-end street After two decades of strong economic growth, emerging Europe has lost momentum. Robeco Emerging Markets Equities is currently not invested in Central and Eastern Europe because of the unstable economic policy in the region, say Dimitri Chatzoudis and WimHein Pals. When Poland, Hungary and the Czech Republic became members of the European Union in 2004, it created a steady investment climate for companies from Western Europe and elsewhere. During the 2008-2009 crisis, Poland was actually the only country in the European Union to avoid recession. But things changed after the crisis. Foreign investments in Central and Eastern Europe dried up and the exports from East to West dwindled. Buoyed up by high
We believe in a prudent approach As we approach the end of the year, we can safely say that uneventful is not a word that applies to 2016. The main culprits, of course, were the British referendum and the US elections. In both cases the outcome defied all the polls and expert predictions, and thus took financial markets by surprise. This reaffirmed the limitations we face when predicting the future in general or the outcome of specific major events. The most interesting aspect of both the Brexit referendum and the US election is probably that they were both close calls. A 48-52 outcome, as was the case with Brexit, in absolute numbers is not that different from a 52-48 result. With the US elections the difference was even smaller: 47.8% versus 46.9% of all votes (or to be more specific: 62,825,754 versus 61,486,735 votes), and in favor of Clinton too. The impact however was huge because in both cases voters faced a binary ‘bet’: the winner takes all. As investors we have learned not to bet on a specific outcome, but to prepare our portfolios for all scenarios. In general, however, our industry and the media spend way too much time and energy on predicting the unknown, especially at this time of the year. Forecasts for the 12 months ahead can be useful, funny or thought-provoking (and, yes, we jump on the bandwagon too), but it usually makes more sense to take a more long-term view. That is the reason why we put so much time and effort into our annual five-year Expected Returns publication. And why, when looking at the past, we also dig deep.
income from raw materials, Russia initially looked like a potential new market. But this too came to an end in 2014, as oil prices collapsed. Meanwhile, the political wind changed direction in Poland and Hungary, with the rise of Eurosceptic and populist ideas. These two countries are no longer progressive and stable, and their investment climate has worsened.
No matter how important current events seem to be, Brexits and US elections are just ripples on the surface from a longer term perspective. In this Robeco Quarterly we look at the history of mutual funds since 1774, which shows that in the early days it all revolved around prudence – a virtue many investors have lost sight of along the way. We also look at the long-term future of Quant investing, where we believe this prudent approach will enable us to stay ahead of the pack. Wishing you all the best for 2017,
Peter Ferket, Head of Investments
Robeco QUARTERLY • #2 / DECEMBER 2016
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