Displaying items by tag: emerging markets

Some of the biggest names in finance are benefitting from a lack of reliable ESG data in emerging markets. Federated Hermes is one firm that has spent considerable time over the past year building its ESG exposure to emerging markets. The company says “artificially low” environmental, social and governance ratings have created opportunities for investors. Martin Todd, a portfolio manager at Federated Hermes told Bloomberg that “the mainstream ESG ratings firms often give emerging-market stocks a lower ranking because of fewer disclosures relative to companies listed in the developed markets. That’s created some really interesting valuation opportunities.” In emerging markets, ESG regulations are less advanced than in developed markets and ratings aren’t as established. In fact, ESG ratings for emerging market companies are artificially low due to a lack of disclosure, not because of any particular concern. While that creates an extra layer of risk for some investors, for firms with deep pockets, it provides an opportunity to beat the market.

Finsum:Fund managers are generating alpha in emerging market ESG stocks due to a lack of disclosure and artificially low ratings.

The U.S. had two consecutive quarters of negative growth meeting the technical requirements of a recession, and for the first time in over 40 years that coincided with very high inflation. Tasked with generating high returns in a stagflation environment investors are turning to an odd place, emerging markets. While some EM has suffered as a result of a stronger dollar and Fed tightening, pockets are promising to bring big returns in higher growth environments abroad. Countries relying on exports will have a difficult time, but countries like India, Malaysia, and Indonesia all have fairly robust domestic consumer demand and are quick-growing economies. The last country is an oddball but China has continued to deliver stimulus throughout the pandemic and may put itself in a good position to capture investor attention.

Finsum: Equities abroad are ultra-low, finding the right countries with domestic consumer support could be very profitable.

Tech stocks are suffering and pushing the Hong Kong broad market index lower early this week. Companies like Alibaba and JD.com were driving this slump. Overall, economic data has been positive for China though. The latest report showed that dollar-based exports grew by almost 20% in July. The region as a whole is experiencing diverging patterns in equity performance as South Korea and China excluding Hong Kong both grew. Still with currency risk higher than usual as a direct result of Fed tightening and higher inflation emerging market investors are having a difficult time finding North in the current environment.

Finsum: If covid is starting to slow as a result of the climate it could be great for countries relying on trade. 

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The bond market blues have been difficult as rising rates have started to really deflate a lot of funds. However, active bond funds have had an edge because not been pegged to indices they have freely navigated to localized emerging market debt. From HSBC to BNP many of the largest funds are buying up localized EM debt because many of these countries’ central banks tightened monetary policy last year and the rate hikes are already built-in. So as bond prices go down in the U.S. and inflation risk remains high, hawkish central banks in Russia, South Africa, Indonesia, China, and South Korea have all soured because localized currency means higher real payout and with relatively lofty interest rates the funds have a more promising horizon.

FINSUM: 12-Months ago the U.S. was looking at Emerging Markets as crazy for tightening the belt too quickly, but now these emerging markets are ahead of inflation and their bonds are soaring.