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‘EM yield hunt trumps trade wars for now’

The trade dispute between the US and China remains a key concern.

Bloomberg|
Last Updated: Oct 07, 2019, 08.59 AM IST|Original: Oct 07, 2019, 08.59 AM IST
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The hunt for yield is still on in emerging markets. And as that plays out, expect Asia to outperform.

Those are the main findings of Bloomberg’s quarterly survey of 54 global investors, strategists and traders on their outlook for developingnation assets.

The trade dispute between the US and China remains a key concern. But looser monetary policy among major central banks will still push investors toward riskier assets over the rest of the year, according to the survey.

Stocks and bonds in Asia have the brightest prospects, while the Brazilian real and Russian ruble were the top picks for currencies. Argentina was the least-favored nation for all asset classes.

“The direction of global growth is pointing downward and that's a negative for risk assets,” said Satoru Matsumoto, a Tokyo-based fund manager at Asset Management One Co., which oversees about $500 billion. “But we all have to find higher yields somewhere.”

EM assets have just come through what was their worst quarter in 2019, as investors fretted over trade wars and the rising risk of a global recession. MSCI’s index of currencies is poised for a second yearly loss, while a measure of stocks is holding on to a 2.9 per cent gain for the year. With central banks turning more dovish and inflation slowing, a Bloomberg Barclays index of local-currency bonds is still keeping a year-to-date gain of 4.3 per cent.

After the US Federal Reserve cut interest rates for a second time this year in mid-September, the focus began shifting to the trade war as the main focus for emerging-market watchers. The imposition of tariffs has hit growth in EMs, prompting authorities into action to contain the fallout.

Asia kept its top positions for currencies and stocks and overtook Latin America for bonds. Europe, Middle East and Africa remained the least favored region across all asset classes. The Brazilian real’s become the EM currency most likely to outperform, while Asian high-yielder Indonesia remained the top pick for bonds. For equities, China kept the No. 1 ranking for the third straight quarter, while India overtook Brazil as the secondmost favoured stock market.

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