Daily Management Review

Despite China Concerns, Emerging Market Attracting Investors


08/10/2016




Despite China Concerns, Emerging Market Attracting Investors
The emerging economies are gaining the confidence of investors who are being driven by the hunt for yield but this time there are a few key differences this time in the investment types.
 
Measured by the MSCI Emerging Markets Index, emerging market equities have rallied by 13 percent since the post-Brexit referendum sell-off and are now 30 percent up from the low seen at the end of January.
 
According to figures from Bank of America Merrill Lynch, record amounts of money have been invested in emerging market debt in the past five weeks.
 
Compared to bets in the more established markets, the equities and assets that are made in the emerging markets are traditionally perceived as riskier. Despite this investors are looking outside safe havens due to plenty of liquidity in the market and a low to negative interest rate environment across the Western world.
 
However another sell-off could be parked by a number of nasty surprises. Such surprise were the bonds market rout in the established markets and an earlier-than-forecast hike in interest rates the U.S. Federal Reserve.
 
"We see scope for the markets to run further still over the near-term," strategists at UBS wrote in a research note. However the big four of Brazil, Russia, India and China aren't always the center of attention and there is plenty of differentiation within the asset class.
 
As concerns about the health of the world's second largest economy continue, the popularity of Chinese assets seems to have declined in spite of this revival of interest in emerging markets. According to EPFR Global, more than in any other emerging markets economy, investors reduced their positions in Chinese assets in June. According to Capital Economics research, around $25 billion of capital per month is being taken out of China.

"There's a big question mark over whether they can rebalance towards a more consumption led growth model. You can see consumer price inflation picking up a bit, within services and that is a positive," Will Ballard, head of emerging market and Asia Pacific equities at Aviva Investors, told CNBC.
 
Although India remains one of the most popular in emerging market funds, there was also a pivot away from the country.
 
Russia is expected to return to positive growth later in the year even though the plunge in the oil price and the series of economic sanctions against the country by the West has left Russia’s economy struggling in recent years. However the recovery of the Russian economy would be "slow-going", according to William Jackson, senior emerging markets economist at Capital Economics.
 
Optimism is also being attracted by Brazil which is currently in the Olympics spotlight. Driven more by the new President Michel Temer pushing through much-needed reform than due to the expensive and controversial Games, Brazilian economy is attracting investments.
 
Indonesia is attracting attention within the smaller emerging market economies. "They've been able to lower rates, bring in a tax amnesty, push through more favorable policies, and you can see the domestic environment improving," Ballard said.
 
(Source:www.cnbc.com) 






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