Questor share tip: Emerging markets should lead any recovery

In a replay of the banking crisis a few years ago, emerging markets have been hit hard by the recent flight to safety on eurozone debt woes.

Templeton Emerging Markets IT
566p -21
Questor says BUY

Shares in Templeton Emerging Markets Investment Trust are down 18pc since their peak in January this year.

There was a significant fall in the net asset value (NAV) of the trust over the last month. Yesterday, the group revealed that its NAV per share at the end of August was 628.67p, on an ex-income basis, down from 692.80p at the end of July.

However, there is now speculation of a series of interest-rate cuts in emerging markets, as the global economy stutters. This will be positive for stock markets in these economies. Questor also thinks that any turnaround in these fledgling markets will be rapid – just like after the banking crisis in 2009.

Growth is, of course, slowing – but growth is still there, compared to debt-burdened western economies, where growth is negligible at best.

The fund continues to have most of its investments in Hong Kong and China, which represents 25.6pc of its investments. This is followed by Brazil, at 17.4pc, then Thailand with 11.5pc.

As far as sectors go, the largest is financials, with 25.9pc of invested funds, followed by energy with 21.7pc.

In the first half of the year the group bought back and cancelled 50,000 shares, costing £314,000. It also paid its interim dividend of 4.25p on July 27.

A couple of weeks ago, Mark Mobius, Templeton's founder, said he thought that stock markets will start to climb as inflation accelerates.

"At this point, I do think we're bouncing along the bottom," Mr Mobius said. "For us in equities, it's particularly good because people will eventually realise that to beat inflation that's coming as a result of this higher money supply, we're going to have to be into equities."

The trust was first recommended on January 5 2009 at 284p. The shares have risen more than two-fold since then, but were downgraded to a hold when they were at 672p in April.

The shares are now below this level and are once again a buy.