“A shakeout in emerging market equities has created value in a world where good quality value is scarce,” said Richard Turnill, global chief investment strategist at BlackRock, the world’s biggest money manager.
MSCI’s gauge of emerging market equities is off 6.21% for the year to date, and some 15% from the peak it struck in January. In comparison, developed market stocks have posted gains of 2.3% for 2018, MSCI data show.
The pain has also spread into the fixed income market. Dollar-denominated EM government bonds have generated negative returns this year of 3.3%, according to JPMorgan’s global EMBI index. EM corporate credit has also been hit.
While “tail risks” have increased for EM stocks, Mr Richard Turnil says “we believe current valuations and strong earnings growth offer investors ample compensation for these risks.”
Alessio Rizzi, portfolio strategist at Goldman Sachs, offered a similar opinion: “We continue to like EM equity as we think it has priced enough growth slowdown relative to incoming data which shows some recent improvements.”
Lauréline Chatelain, fixed-income strategist at Pictet Wealth Management, said “trade war clouds” had left the wealth manager neutral on EM as a whole for the next three to six months. However, “some opportunities are appearing, particularly in EM corporate bonds,” she said.
Ms Chatelain said investors should be “very selective when picking EM bonds”. In particular, she suggested avoiding local government bonds in “countries that could be subject to further currency depreciation like Turkey and Brazil as their central banks could continue their hiking cycle.”
“We favour countries with better economic prospects and less exposure to international trade like India and to a certain extent Mexico,” she said.
Financial Times, 2018-07-31, “Emerging Market Wobbles Create Buying Opportunities, Analysts Say”