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Long-term structural drivers which favour emerging markets remain intact for 2012, says Legg Mason subsidiary, Batterymarch

Emerging markets will continue to offer a number of positive factors such as solid sovereign credit fundamentals, attractively valued currencies and foreign reserve positions in 2012, according to Legg Mason subsidiary, Batterymarch.

Below, Ray Prasad, Director and Senior Portfolio Manager at Batterymarch, the global equity specialist which manages $17.5bn* in assets, shares his views for 2012.

“We continue to focus on fundamentally sound companies that are expected to succeed in a slow-growth global environment, although unresolved macro issues are likely to cause periodic market volatility in the near term.

 “Emerging markets equities are attractively valued compared to developed markets with stronger long-term growth prospects, though short-term prospects remain muted in the general global slowdown. The tightening cycle in the larger, more influential markets, including Brazil and China, is at an end as inflation expectations lowered in the latter half of 2011. Brazil and Turkey have cut interest rates; China recently announced its consumer inflation rate has fallen to 4.1% YOY in December. In addition, most emerging markets are benefiting from the demographics of burgeoning middle classes, and domestic consumption continues to rise.

“We believe that the long-term structural drivers that have favored emerging markets over developed markets remain intact and that recent relative weakness was tied to cyclical drivers, emerging markets’ beta characteristics and geopolitical factors, as earnings growth has remained solid and earnings revisions are positive in most markets. Many emerging markets continue to offer solid sovereign credit fundamentals, attractively valued currencies and strong foreign reserve positions, providing a supportive environment for corporate earnings.”

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