Emerging markets approach turning point
Some nations including Turkey and Indonesia are likely to continue to feel pressure
Franklin Templeton Investments says the rout in emerging markets may be nearing a bottom though reckons there are still countries like the Philippines that will suffer.
Given the uncertainty, the money manager is keeping a net neutral dollar position, while making trades including shorting the Philippine peso, as well as betting the Aussie will decline against the New Zealand dollar, said Chris Siniakov, managing director of fixed income for Australia at Templeton.
“We are trying not to make the big dollar decision at the moment because we feel like it could pop either way,” Siniakov said in an interview in Sydney. “We are preferring to choose where there’s relative value and who we expect to be winners and losers in the emerging market complex.”
The greenback’s resurgence has prompted President Donald Trump to previously jawbone the currency. That’s not deterring speculative investors such as hedge funds that are still betting on further dollar gains, data from the Commodity Futures Trading Commission show.
It could go either way, Siniakov said. The dollar might appreciate more if investors continue to seek haven assets amid worsening US and China trade relations, though it may be weaker if the US economy starts to overheat and the chance of a slowdown starts to weigh on investors’ minds, he said.
“For us here locally we’re focusing on the Asia region, it’s about countries that are in a better fiscal position, good domestic stories and good policy actions by their leaders,” said Siniakov. Some emerging markets, including Turkey and Indonesia will continue to see pressure, he said.
Core of portfolio
The core of Templeton’s fixed-income portfolio consists of investment-grade corporate bonds. But even there, things are looking expensive, he said.
“We are closer to a bottom, although I don’t know that we’ve seen a real capitulation in emerging markets. There’s been pressure, but in some ways it’s been orderly. We haven’t seen the shock and awe, for example, through a real dive in Treasury yields and a full flight to quality.”