84813
Turkey, Hong Kong, Mexico and Malaysia are among the more exposed markets.
Turkey, Hong Kong, Mexico and Malaysia are among the more exposed markets.

Investors Getting Selective as EMs Show Progress

Investors Getting Selective as EMs Show Progress

Emerging markets have weathered this year’s market volatility just fine so far. But some investors are using this as an opportunity to get a lot more selective, with challenges looming from trade tensions to the winding down of central-bank stimulus.
"Now we can rule out the ‘global synchronized growth’ theme, which dominated early this year," said Jinha Kim, head of global fixed income in Seoul with Mirae Asset Global Investments Co., one of South Korea’s biggest money managers.
The firm has reduced its position in emerging-market currencies and bonds to neutral, and shifted to underweight for Turkey and Mexico specifically, Kim said, Bloomberg reported.
Kim cited trade tensions in the wake of protectionist moves by US President Donald Trump as a concern for emerging-market growth prospects. Nomura Holdings Inc. analysts led by Rob Subbaraman in Singapore listed trade tensions as one of four potential triggers for "a major market repricing of EM risk premia, sparking a painful EM snapback" in a recent research note.
And here are the other three:
- a US bond-market sell-off, which would diminish the incentive of heading to other currencies for yield premiums
- unwinding of quantitative easing by developed nations central banks. The US, euro region, Japan and UK, added together, will start quantitative tightening in the fourth quarter—potentially reversing portfolio flows to riskier assets, Nomura reckons
- China growth slowdown, prompted by the leadership’s focus on reducing financial risk and pollution, which would have harder knock-on effects in emerging market thanks to trade and commodity-price links.
"It is notoriously difficult to pinpoint the timing of an EM snapback, let alone the trigger," the Nomura analysts wrote, offering a best-guess of the third quarter of 2018 as being high risk. Chile, Hungary, Poland and Thailand are among the less vulnerable, while Turkey, Hong Kong, Mexico and Malaysia are among the more exposed, they wrote.
Not everyone sees emerging markets as particularly vulnerable. Hideo Shimomura, chief fund manager of Mitsubishi UFJ Kokusai Asset Management in Tokyo, says that decoupling between the developed world’s credit cycle and that of developing nations could help. Rather than emerging nations with solid growth prospects such as in Southeast Asia and eastern Europe, investors may choose to exit developed-world credit markets, he said.

You can also read ...

Qatar Capable of Overcoming Siege Challenges
Qatar affirmed its ability to overcome the challenges of the...
Apple Inc won guarantees from the Trump administration that its lucrative iPhones would ship from China  without being subject to tariffs.
Big companies in the United States from Amazon.com Inc to...
Japan Inflation Inches Higher
Japan’s inflation picked up slightly in June, largely because...
Today, income inequality in the US is greatest among Asians. Asians displaced blacks as the most economically divided racial or ethnic group in the US.
The rich are getting richer and the poor are getting poorer in...
Growing Inflation Looms Large Over India’s Economy
From rising crude oil prices to a poor start to rice-planting...
State-Actors Likely Behind Singapore Cyberattack
State-actors were likely behind Singapore’s biggest ever...
S&P Affirms Russia’s Stable Outlook
Standard & Poor’s said in a statement on Friday that it...
Argentina Making Fiscal Progress
Argentina is “unequivocally” making progress on its goals to...

Add new comment

Read our comment policy before posting your viewpoints

Trending

Googleplus