Reuters has a good analysis about the rebirth of emerging markets along with how the redeployment of borrowed US dollars into traditionally higher growth markets, also known as the carry-trade, could be fueling an unrealistic outlook.
The article noted that Bank of America-Merrill Lynch analysts have said that investors could keep taking on risk, including emerging markets, as volatility remains low. But they also said the bond-market rally will eventually end due to increased questioning of the “assumption of ZIRP to infinity.” Hence:
“We stick with the view that a summer melt-up would likely be followed by a nasty correction in the autumn.”
UBS’s Dennis was quoted as saying that he thinks emerging-market equities could gain 10% this year, but money will shift toward defensive nations such as South Korea, Taiwan, Mexico, Poland and Colombia.
Win Thin, global head of emerging markets strategy at Brown Brothers Harriman, said some of the rebound was a reaction to oversold positions, concluding that:
“The bottom line is, pick countries with strong fundamentals because it is not going to be a broad-based rise.”
He is forecasting top equity performers to be from Singapore, Hong Kong, China, Peru and Russia.
To read the whole article, Carry trade, politics boost emerging market equities, go to the website of Reuters.
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