Catching up: How much further can emerging assets run?

- Advertisement -
- Advertisement -
- Advertisement -
- Advertisement -

The global risk rally has lifted some badly bruised emerging assets, but investment managers are split on how much momentum is left to support developing stocks, bonds and currencies amid the challenges of kickstarting coronavirus-hit economies.

Investors pulled more than $80 billion from developing stocks and bonds in March as the fallout from the coronavirus pandemic and a oil shock ripped through world markets.

Since then, some of that money has returned, especially to Asia. Emerging bonds’ premiums over underlying safe assets have snapped in as yields came off recent highs, and as emerging currencies have steadied. Adding to the tailwinds for risk assets has been a steady decline in the dollar in recent weeks.

Betting on a recovery of assets from emerging economies that are on the cusp of reopening whilst still grappling with high or climbing infection numbers – such as Brazil or India, means risks are also high.

JPMorgan said in its latest global asset allocation note it had added both emerging market equity and fixed income to its model portfolio. Assets outside China, Hong Kong, Taiwan, Korea and Singapore have lagged the recovery so far, the note said.

“We see a good chance of them catching up,” JPM’s Nikolaos Panigirtzoglou told clients. “Our EM position indicators are supportive of a bullish view on EM risky assets.”

So far though, only a fraction of the money which fled has been induced to return. Emerging market bonds and stocks saw inflows of $17.1 billion in April and $4.1 billion last month. However, excluding China, emerging stocks continued to suffer outflows in May.

Much depends on whether developing markets would be able to avoid a widespread pickup in COVID infection rates when emerging from their lockdowns, said Goldman Sach analysts in a recent note.

“If medical outcomes in EMs can continue to avoid left-tail scenarios, our analysis implies tactical upside in EM high yield credit, LatAm equities and EM FX,” Goldman Sachs’ Kamakshya Trivedi said.

However, there are risks in high-yielding countries where infection rates are high, Trivedi added, citing Brazil, Colombia, India, Mexico, the Philippines, Turkey and South Africa.

 

These economies still face major hurdles before they can return to growth, which is why many funds are biding their time.

“Large emerging countries like India, Brazil, Mexico where we are still in the early to mid-stage of the spread of virus … there (it) is still unclear about growth prospects post-COVID, so you have to keep analysing,” said Neeraj Seth, head of Asian credit at BlackRock.

“That is still reflected in our portfolios.”

David Hauner at Bofa noted that emerging local- and hard-currency debt had little risk premium left after the May rally. while several central banks have started pushing back against letting their currencies appreciate.

“EM has rallied hard, and we are starting to worry about complacency,” Hauner added, warning investors to curb their “EMthusiasm”.

And after the torrent of stimulus in the euro zone, United States and China — from central banks as well as governments — there are questions over how much more can be delivered.

“The good news from the big global policy decisions seems priced in by now,” said Hauner.

This article was originally posted on finance.yahoo.com/news/.

Home of Science
Follow me

Latest posts by Home of Science (see all)
- Advertisement -

Discover

Sponsor

Latest

Mesothelioma Causes

There are many kinds of mesothelioma causes. This means that the causes could be different in various cases. The kinds include exposure to asbestos...

Use Your Own Website For Netflix

Use Your Own Website For NetflixI love to make my own videos on the internet and a recent discovery was how easy it...

Netflix Makes a Movie of ‘The Simpsons’

Netflix Makes a Movie of 'The Simpsons'When a television show has become so popular that it has revolutionized the way we watch TV,...

Designing the Perfect Business Cards

Designing the Perfect Business CardsBusiness cards are a great way to let others know who you are, what you do, and your location....

Microsoft’s push to the cloud may save it from a coronavirus crash

This article is part of a series tracking the effects of the COVID-19 pandemic on major businesses, and will be updated. It was originally...
Home of Science
Follow me
Latest posts by Home of Science (see all)