Investment in emerging markets is heating up again
After Donald Trump won the U.S. election, emerging market investors were scared. They withdrew tens of billions of dollars from related investment funds due to concerns that the new president’s policies would cause a wave of problems for the asset class.
Half a year later, investors abandoned their worries about the so-called "Trump downturn." They returned to emerging markets, trying to reap the rewards in a low-yield environment and profit from the strong economic growth of emerging market countries (from India to Colombia).
In the week ending May 24, emerging market funds recorded inflows for the 10th consecutive week, even though Moody's downgraded the sovereign credit rating of China (the largest country in the asset class) in the same week. However, emerging markets, which account for 80% of the world’s population, are not suitable for the faint-hearted. The crash that occurred in 2008 is an example. At that time, the MSCI Emerging Markets index, which covers more than 20 countries including Russia, South Africa, and the Czech Republic, lost more than half of its value within a year.
However, investors gradually returned to emerging markets last year, and the market stopped falling and rebounded. The MSCI Emerging Market Index rose 11.2%.
According to data provider Morningstar, in the 12 months to the end of March, more than $100 billion of funds flowed into funds investing in emerging markets because investors tried to benefit from demographic shifts that gave birth to A much larger middle class with money to spend. This is in contrast to the $35 billion redemption in the previous year.
Anders Damgaard, the chief financial officer of PFA Pension, a Danish fund that manages 60 billion euros in assets for 1.2 million existing and retired employees, quickly increased his exposure to emerging markets last year, even though he was in Troang. After Pu was elected, related investments were immediately stopped.
He said: "We were very careful at the beginning of (2017), hoping to see what Trump's start was like. After mid-February, we started to increase the risk again."
He also said that concerns about the US president's protectionist policies that are detrimental to emerging markets have not become a reality. "Today, our allocation of emerging market assets is higher than the benchmark level."
Damgau is not alone. According to an influential survey conducted by Bank of America Merrill Lynch in May, 41% of global fund management companies currently allocate assets in emerging markets above the benchmark level.
Rupert Watson, the head of asset allocation for the investment department of the consulting firm Mercer, said that compared to the benchmark level, his investment in emerging market stocks is higher, and he is currently "considering overweighting." Income assets.
"The reason for investment is that the economic growth of the entire emerging market has turned, which may lead to growth in corporate profits. This is different from the United States, where valuation seems to have begun to reach its limit.
But as many investors are pouring into emerging markets, some people question whether they have missed their best gains. Some investors have reduced their exposure due to concerns about the prospects of specific countries, the impact of interest rate hikes, and the possibility of a slowdown in China.
Maarten-Jan Bakkum, a senior emerging market strategist at NN Investment Partners, a Dutch fund company that manages nearly 200 billion euros in assets, said that in terms of emerging markets, many investors now have a "solid foundation". Position".
He said: "Funds are constantly flowing into emerging markets, and people are generally over-allocated. When this happens, we have to be very vigilant, and people may be disappointed." NN Investment Partners began to decrease last month. Holding its emerging market debt position, it is no longer overweight.
Bakum said: "(The outlook for emerging market debt) is not as beautiful as last year." He pointed out concerns about China's prospects.
Concerned about China's growing debt levels, Moody's downgraded China's sovereign credit rating for the first time since 1989, which made some investors uneasy. What they worry about is that China's economic growth may slow down, which may cause a collateral impact on many other emerging market economies.
Hartwig Kos, co-head of multi-asset class at Syz Asset Management, a fund that manages 16.1 billion euros in assets, said he is wary of emerging market stocks, which is related to concerns about China.
Coase’s investment in emerging market stocks was about 9% at the beginning of this year, but it has since been reduced to about 3.5%. He said: "I think investors are too indifferent to China's risks. I am worried about the Chinese factor in stocks."
There are also concerns that US interest rate hikes may hurt emerging markets—many emerging market companies hold dollar-denominated debt. The political turmoil in countries such as Brazil (a corruption scandal has destabilized the government) has also made some investors uneasy.
But despite these concerns, Colm McDonagh, head of emerging markets fixed income at Insight Investment, which manages £540 billion in assets, said that due to reforms within large economies, improved global growth prospects and investors The demand for yields and the reasons for investing in emerging markets remain strong.
In the year to the end of March this year, passively managed funds that track indexes rather than pick stocks received 60% of the funds that flowed into emerging market mutual funds. But McDonald argued that any investment in emerging markets needs to consider the national conditions of specific countries. He said Kuwait, Indonesia and Colombia looked interesting. "We are underweight in Asia and the financial sector. The key is to pick different parts of the market."
Coase said he sees opportunities in emerging market bonds, even though he only invests in four countries, including Mexico. Bakum added that although he is more cautious about emerging markets than a year ago, this asset class offers better return opportunities than developed markets.
"If you have a long-term investment perspective, you should like emerging markets, especially the stock market."
He said: "The growth in emerging markets is not as exciting as in the past, but it is still higher than in developed markets."