Peter Cecchini, the global chief market strategist at Cantor Fitzgerald in New York, says the recent recovery in many emerging-market assets has been a function of the Fed’s pivot earlier this year, and when markets realize growth will remain depressed, riskier assets will suffer.
“By the end of 2019, we feel that the global growth slowdown will be too much for EM assets even with easier policy,” Cecchini said. “The timing is tough, but sometime later in the year, EM risk assets will begin to underperfom.”
Embrace the Risk
Bank of America Merrill Lynch is bullish on developing nations, saying there is still room for gains, especially if the Fed cuts 50 basis points. The bank is long in emerging markets across asset classes, including debt in Argentina and Ukraine and equities in Brazil and China.
“We stay bullish on risk,” strategist David Hauner wrote in a report Monday. “If the data start to improve after September, an asset price boom may be upon us.”
Other investors are more selective. Morgan Harting, a money manager at AllianceBernstein in New York, is playing the risk via stocks. He has taken profit on some EM bonds that have rallied and bought equities instead, given the lower valuations and the faster growth in emerging markets compared with developed nations.
“Lower rates in the U.S. would benefit EM equities in two ways: first, it would lower the cost and availability of financing for companies, and second, it would mean investors discount future earnings at lower rates,” Harting said.
He sees good returns in China, India, Russia, Taiwan, Korea and Brazil.
This story provided by Bloomberg News.