When others are scared in investing, it pays to be brave. So says analysis from Jan Dehn anyway. His work examining bad news cycles and emerging market returns shows that buying when others are afraid of EM markets can increase returns by 10 percent a year. The FT’s Steve Johnson reports:
Number-crunching by Jan Dehn, head of research at Ashmore, the British investment manager, suggests the best time to buy EM assets is during media blitzes — all driven by bad news — while the worst is when the EM world is so tranquil it barely garners a column inch.
Mr Dehn analysed mentions of “emerging markets” in the database of Dow Jones Factiva, a research tool which monitors 33,000 publications, over the last 20 years.
He identified 16 media “frenzies”, defined as a period when mentions are at least 30 per cent above the 12-month moving average, ranging from the Argentine crisis of 2001, via the global financial crisis to Venezuelan default fears in 2017.
His analysis suggests an investor who bought only during these periods (and left the money invested) would have received excess returns of more than 10 percentage points a year from EM equities, on top of the underlying profits of 4.1 per cent from a “media-agnostic” strategy of constantly drip-feeding money into the market. EM bonds, too, would have offered significant out-performance.
In contrast, investors who bought during media troughs, when mentions are at least 15 per cent below the norm, would have underperformed a neutral strategy across every asset class.
Mr Dehn’s thesis is that the media “overhypes bad news” and that journalists and investors wrongly extrapolate from problems in a few countries to the entire EM universe. That prompts a rash of selling that creates value.
Read more here.
Jeremy Jones, CFA
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