Why Emerging Markets Are Up to the Stress Test (FP)
Foreign Policy magazine has noted that the real test of investor sentiment lies in emerging markets, the asset class most sensitive to sudden changes in investors’ perceptions of risk. In May 2013, the mere hint of a gradual withdrawal of the Fed’s monetary stimulus led to sharp declines in the bonds and stocks of emerging markets. After a five-month-long rally, developing economies are again showing signs of strain as over the past month, emerging market stocks have fallen 2.3% (and Latin American shares 5%) compared with a 1.5% rise in the benchmark S&P 500 index.
However, emerging market stocks have had a good run of late and were due for a correction at some point while investor sentiment towards emerging markets is not as bleak as the headlines suggest because foreign investors have been increasing their holdings of EM local currency bonds this year, particularly in Asia and Latin America, but also in Turkey, which is still deemed to be one of the riskiest EMs.
Moreover, developing economies are a lot more stable and credit-worthy than they were during the 1990s with most emerging markets now have investment-grade credit ratings thanks to significant improvements in their economic fundamentals over the past 10 to 15 years.
Finally, domestic institutional investors, such as Mexican pension funds and Asian insurers which have grown in recent years, hold the bulk of developing countries’ bonds, helping shore up emerging markets when flighty retail investors from developed markets decide to exit the market.
To read the whole article, The Emerging Market Stress Test, go to the website of Foreign Policy.
- Advanced Economies More Upbeat Than Emerging Markets (Pew Research)
- Investor Sentiment Survey: What Emerging Market Investors Think (Franklin Templeton)
- A Simple Allocation Strategy for Including EM Stocks in Global Portfolios (The Emerging Markets Investor)
- Emerging Markets Hit by Record Streak of Withdrawals by Foreign Investors (Financial Times)
- Ashmore Investment Management: Aggressive Western Foreign Policy Threatens Emerging Market Progress (funds europe)
- Emerging Market Debt Outlook 2018: A Global Rebalancing is Due (Vontobel)
- Oppenheimer’s Leverenz Blames “Radical Collapse” in FX Markets for Poor Performance (WSJ)
- The New Emerging Markets Landscape: Policy Improvements Should Contribute to Increased Resilience (Franklin Templeton)
- “Fragile Five” Emerging Markets No Longer That “Fragile” (AP)
- Lloyds Bank Survey: Investor Confidence in Emerging Markets is UP, Confidence in the US is DOWN
- Emerging Market Stocks are Struggling in an Intangible World (Economist)
- Invest in Poorer Performing Emerging Markets for Better Gains? (CNBC)
- No Emerging Markets Crisis According to Mark Mobius (FE Trustnet)
- Emerging Markets 2018 Economic Outlook (Focus Economics)
- Wealth Managers Struggle to Tap the Wealthy in Emerging Markets (II)
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