Strong re­bound on the emerg­ing mar­kets fore­cast

Pos­i­tive mood per­vades in­vest­ment sum­mit

Weekend Argus (Saturday Edition) - - LIFE - SU­JATA RAO and TARIRO MZEZEWA

LON­DON/NEW YORK: Af­ter a mis­er­able few years, emerg­ing mar­kets are in line for a strong re­bound in cap­i­tal flows next year, some of the big­gest in­vestors pre­dicted this week, although they warned ben­e­fits will not be shared evenly.

Speak­ers at the Reuters Global In­vest­ment Out­look Sum­mit this year were mostly pos­i­tive about emerg­ing mar­ket prospects. In con­trast to the gloom per­vad­ing last year’s sum­mit, the worst fears of a Chi­nese hard land­ing ap­pear to have ebbed, while steep de­clines in as­set prices may have opened up value.

Losses of up to 30 per­cent in cur­ren­cies such as the Brazil­ian real and Malaysian ring­git against the US dol­lar have also con­vinced many de­layed eco­nomic ad­just­ment is un­der way.

“Emerg­ing as a theme is back go­ing into next year,” Pas­cal Blanque, who over­sees $ 1 tril­lion at Amundi As­set Man­age­ment, told the sum­mit.

“We will see in­flows mov­ing back into the so-called emerg­ing space on a dis­crim­i­na­tory ba­sis. I am see­ing ap­petite grow­ing to play the com­bi­na­tion of cheap cur­rency and growth re­bal­anc­ing.”

Blanque’s “con­vic­tion” trade in emerg­ing mar­kets, driven by be­lief in a soft land­ing in China, is ASEAN, the Asian trade bloc of In­done­sia, Malaysia, Thai­land and the Philip­pines.

A turn­around, if it ma­te­ri­alises, will iron­i­cally come dur­ing a year when many reckon the US Fed­eral Re­serve will be rais­ing in­ter­est rates.

But Fed tight­en­ing looks likely to be less hawk­ish than an­tic­i­pated and will be coun­tered by pol­icy in Europe and Ja­pan where, Blanque says, “un­lim­ited” stim­u­lus is forth­com­ing.

Ear­lier this month it was re­ported big as­set man­agers had started to raise emerg­ing mar­ket al­lo­ca­tions, be­liev­ing the sell­off had gone far enough.

The new-found bullish­ness is also partly down to signs of re­cov­ery in Western con­sumer de­mand as cen­tral bank stim­u­lus and lower oil prices feed through to spend­ing power.

Per­ci­val Stan­ion, head of multi- as­set at Swiss firm Pictet, pre­dicts re­tail­ers will en­joy bumper Christ­mas sales af­ter sev­eral lean years, in turn ben­e­fit­ing man­u­fac­tur­ing hubs such as China and Korea.

With its growth pre­mium to richer peers hit­ting 16- year lows, the de­vel­op­ing world will see the first net cap­i­tal out­flow this year since 1988, ac­cord­ing to the In­sti­tute of In­ter­na­tional Fi­nance.

Many re­main cau­tious – Bon­nie Baha at Dou­bleLine Cap­i­tal in New York sees more pit­falls ahead, es­pe­cially from the stronger dol­lar. But oth­ers see value be­neath the rub­ble.

Aberdeen chief in­for­ma­tion of­fi­cer Anne Richards, for in­stance, pre­dicts dou­ble-digit eq­uity gains next year.

Sim­i­larly Mauro Ratto, head of emerg­ing mar­kets at Pi­o­neer, ex­pects “nice sin­gle-digit re­turns” on emerg­ing mar­kets bonds, bet­ting many coun­tries will have room to cut 2016 in­ter­est rates.

Sum­mit par­tic­i­pants were unan­i­mously bullish on In­dia, for ex­am­ple and con­sid­ered Brazil too risky.

Rick Rieder, chief in­for­ma­tion of­fi­cer of fun­da­men­tal fixed in­come for Black­Rock, said in New York that some de­vel­op­ing sov­er­eigns com­pare favourably with parts of Europe.

Amundi’s Blanque said rather than buy­ing emerg­ing mar­ket as­sets en masse, in­vestors will fo­cus next year on mar­kets that can cap­i­talise on do­mes­tic de­mand rather than ex­ports, and are see­ing eco­nomic growth re­cover. – Reuters

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