Rio De Janeiro, Brazil
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Fear and uncertainty in the markets are leading to opportunities in unlikely places, according to Allison Fisch, principal and portfolio manager at Pzena Investment Management.

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As value investors, she says her firm will go “wherever valuation points us,” and there are a variety of options in emerging markets today—including in places where the firm had never previously invested.

Emerging-market stocks have rebounded since the volatility at the end of last year. For the first two months of 2019, the MSCI Emerging Markets Index was up 9% after ending 2018 down almost 15%.

“What’s particularly exciting about today’s environment is that valuation opportunities are very widespread,” said Fisch in a Feb. 15 interview. “It’s not as if there’s only one or two countries where we’re finding all of our opportunities.”

That’s what differentiates the current environment from the beginning of 2016, she said, when valuation spreads were also “extremely wide” in emerging markets but the opportunities were much more concentrated in cyclical areas, like commodities and materials.

This time, there are opportunities in multiple industries, said Fisch, whose firm works on the Renaissance Emerging Markets Equity Private Pool.

So where does she see the greatest opportunities right now? In emerging European and Asian economies.

“We’re overweight to emerging Europe—no big surprise there because Europe is relatively cheap when you look around the globe,” she said. “We happen to be underweight China, but we are overweight to Korea.”

Her team has also added exposure to Taiwan’s tech space through mid-cap companies that have exposure to Apple.

Despite investor enthusiasm around Latin America, which Fisch said many of her clients have been asking about recently, her team is underweight—with the exception of Brazil.

“It’s not as if we don’t like the fundamental story of a lot of the businesses that operate in that part of the world,” she said. “It really just comes down to valuation and what we’re finding popping up for us in the cheapest portion of the universe, which is where we like to hunt for our investment ideas.”

When it comes to Brazil, she said, “There’s a lot of excitement with the new political regime and hopes of pension reform and privatization. And we have been making some adjustments to our Brazilian exposure over the last several months. A lot of that is because the companies that we own there have performed very well in light of the political change.”

Overall, she warned that, as value investors, it’s important to not get carried away by what’s in the news. “Sometimes the excitement around what’s happening in a particular industry or geography can cause the valuation to get ahead of the fundamentals.” Instead, she advised sticking to your discipline.

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