Displaying items by tag: emerging markets

(New York)

Emerging markets have had a rough year, with a bear market taking hold. An “all clear” or false bottom has been called a number of times, which means investors need to be very wary of piling in. That said, an interesting signal is showing that emerging markets may be in for a turnaround. London-based Ashmore plc is a major asset manager focused on emerging markets, managing $76 bn in the asset class. Their shares are a bellwether for where EM assets may be headed. And lately, Ashmore has been doing very well. The shares are still down for the year, but rose for eight straight days through Wednesday, their longest winning streak since February.

FINSUM: This could be a sign that the tide is turning. As further evidence, the gains seen in Ashmore shares were not experienced by other asset managers, showing there is a clear differentiation.

(Istanbul)

The big crash in oil has a lot of investors worried. Generally speaking, falling oil prices are seen as a bad sign, as they tend to forecast a weakening economy. However, this time around, there is a big beneficiary—emerging markets. The large majority of EMs are oil importers, which mean they benefit from weakening prices. Accordingly, countries like India and the Philippines are seeing benefits to their currencies, and likely, their economies. Indonesia and Turkey are also big oil importers.

FINSUM: This is more of a silver lining to a negative than a positive development in itself.

(New York)

The world may be on the verge of a recession and a bear market, or maybe not. But either way, investors need to think about the possibility and have a plan for how to handle it if it comes. With that in mind, some experts have weighed in on the topic. T. Rowe Price says that in a downturn, investors need to buy more emerging markets and hold less bank loans. Charles Schwab thinks investors need to get more defensive, moving out of growth stocks and into defensive sectors, like healthcare. Northern Trust is more benign and does not see big changes coming to the market or economy.

FINSUM: If the economy really goes south, we think the market will go with it, which means defensive sectors would be a good bet. We imagine the Dollar would stay strong and yields would be lower, so income investments could shine(which also happen to be quite defensive).

(Istanbul)

The big selloff in bonds has caused a wipeout in emerging markets. The sector, which has seen broad turmoil this year, just witnessed its biggest selloff since March. That fact is quite eye-opening given that the period includes all the worries over Turkey. The big losses have largely been driven by the appreciating Dollar, which hurts EM economies and assets. With the US economy going so well and the Fed likely to increase the pace of hikes, EMs look vulnerable. The MSCI EM Index fell 2% today.

FINSUM: There are some idiosyncratic problems, but EM economies don’t look as weak as this year’s market performance would suggest. It is really US strength that is hurting EM assets.

(New York)

Something very interesting is happening on Wall Street. Just when US outperformance over global assets has been peaking, US analysts are urging clients to move their money into emerging markets. The catalyst for the recommendations is that the Fed’s tightening cycle is getting more intense, which means US equity values might be peaking before a downturn. That, coupled with currently weak emerging market valuations, means EMs seem to have better upside.

FINSUM: We see the argument, but must disagree. There are two reasons why. Firstly, emerging markets have tended to do badly in periods of rising US rates, and secondly, because EMs will feel the pinch of the trade war, which means their economies are likely to be hurt even more than the US’.