The emerging markets investment opportunity

Positive catalysts to outweigh dollar power
Thursday 16 Feb 2017 Author: Steven Frazer

Several fund managers and analysts are pointing out opportunities in emerging markets being missed by many investors

Donald Trump’s presidential victory sparked worries for emerging markets investors because he had pledged to protect American interests and renegotiate the terms of international trade.

A stronger dollar is generally regarded as bad for emerging market countries with large debts denominated in dollars. Nations such as Turkey, South Africa and some Latin American economies have low domestic savings and high external debt levels, making them more vulnerable to a further strengthening of the dollar, but the two biggest markets, China and India, are much less vulnerable, according to investment experts at fund management firm BlackRock.

Positive backdrop

Several catalysts are in favour of emerging markets, not least that stocks are trading at lower valuations versus developed markets peers. Stabilising commodity prices and fading US dollar strength would also be supportive, say economists at investment bank
JP Morgan.

Population-Seven-Billion-picture--India Crowded-Streets

Recent 2016 figures from UK based emerging markets fund manager Ashmore (ASHM) showed a big spike in outflows around Trump’s victory to around $700m. Were it not for those outflows, UBS analysts calculate Ashmore would have reported $1bn inflows in the last quarter of 2016.

Investors can play emerging markets through low-cost exchange-traded funds such as iShares Core MSCI EM (EIMI) as well as more traditional funds like JP Morgan India (JII). (SF)

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