Heard on the Street
Challenging the Emerging-Markets Consensus
The usual response to financial turmoil is to sell emerging markets, but that looks like outdated thinking
By Richard Barley
Updated June 24, 2015 10:10 a.m. ET
The temptation with emerging markets always seems to be to take the glass half-empty view.
Take the latest worries about lower growth—some of which, at least, is due to reforms that could make growth more sustainable. Emerging countries are still growing faster in aggregate than their developed peers. They will account for more than 70% of global growth this year, the International Monetary Fund thinks, and already account for more than half of world gross domestic product on a purchasing-power-parity basis. The bigger puzzle surely is the lackluster growth in developed economies given the sheer scale of stimulus thrown at them since the crisis.
Meanwhile, emerging-market crises have been loudly proclaimed as imminent several times in the past few years but have failed to live up to that billing. The buffers of cleaner government balance sheets, more flexible exchange-rate regimes and high reserves are proving powerful.
Russia, while undoubtedly suffering as an economy, has managed to withstand a sudden and almost total loss of access to international financial markets—something that in the past could have had a far bigger impact.
Indeed, with the power of extraordinary monetary policy potentially waning, the fact that emerging markets have been largely unloved may be to their advantage. Developed-market valuations for both bonds and stocks look rich; yields look to have troughed. Emerging-market stocks and bonds look much more attractive in terms of future returns given their starting point. Pictet Asset Management strategists forecast double-digit annualized returns for shares over the remainder of this decade. Emerging markets are risky—but at least investors get paid for taking that risk.
A rise in U.S. interest rates is likely to prove testing for all markets, after so many years of loose policy. And knee-jerk selling of emerging stock and bonds at the first sign of trouble may still be hard-wired into market behavior. But it is time for investors to question more carefully its validity.
Home
»
Emerging Markets
»
Investment Strategies
» CHALLENGING THE EMERGING MARKET CONSENSUS / THE WALL STREET JOURNAL
sábado, 27 de junio de 2015
Suscribirse a:
Enviar comentarios (Atom)
0 comments:
Publicar un comentario