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By Karin Anderson | 06-19-2014 10:00 AM

Reasons to Be Bullish on Emerging Markets

Concerns about Chinese growth, Russia, and global liquidity have driven the prices of several quality stocks to appropriate buying levels, says Oppenheimer manager Justin Leverenz.

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Karin Anderson: Hi, I'm Karin Anderson, a senior analyst with Morningstar. I'm at the 2014 Morningstar Investment Conference with Justin Leverenz, the portfolio manager of Oppenheimer Developing Markets.

Hi, Justin, how are you today?

Justin Leverenz: Good morning, Karin.

Anderson: Thanks for being here.

Leverenz: Thank you for having me.

Anderson: No problem. Emerging markets are recovering a little bit after the 2013 sell-off. As a stock investor in this space, what risks are top-of-mind for you right now?

Leverenz: Karin, I'm actually very bullish on emerging markets now for a number of reasons. Why have we seen such significant relative underperformance in the emerging markets? I think there are really two or three things.

The first is what I consider misnomers about China, that China is going to have something like a hard landing or a financial crisis, and I think this is completely inappropriate.

Alongside that, the second is commodity prices have been extraordinarily weak, and this has been reflected in commodity currencies and commodity equities.

And the third, which I think is the largest misnomer and has developed really in the last year, is associated with this idea about global liquidity ebbing, in which case many emerging markets are fragile. Somebody coined this idea of the Fragile Five, and I think it's complete misnomer. The world has structurally changed.

So, the way I think about emerging markets is we've gone through a major cyclical deceleration in the last two years. We're going to start to see a recovery in the large economies: India, Brazil, and Mexico. Second, I think China is unbelievably durable and will be the greatest growth story for the next decade just as it has been for the last. And third, now we've got some appropriate prices. So, I think it's a good backdrop for emerging-market equities.

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