Investor Jitters Likely to Dent EM Performance
ET Intelligence group: Growing riskaversion among global investors and the hunt for a safe haven, owing to mounting tensions between North Korea and the United States, could hurt emerging markets’ performance in the near-term. For investors, the primary concern now seems to be risk-management; everything else is secondary.
In the event of panic selling, the impact on emerging markets could be harder given that they were outperformers in 2017 until recently and the bid-ask spreads are wider. Being a vital cog in the emerging world, the Indian equity market may have to bear the brunt of any upheaval in global markets. The MSCI EM Index — a benchmark for emerging market investment — outperformed the developed market index by the widest margin so far in 2017 since 1993 as global fund managers increased allocation to risky assets and most of the developed world central banks came out with accommodative interest rate guidance. The sudden risk aversion of fund managers can be gauged from the fact that nearly $1 trillion of global market cap, equivalent to half of India’s total market value, was wiped off in just two days of selloff. Besides, the selloff has also sparked an unprecedented rush for protection in the options market.