The bulls are finally starting to outweigh the bears in emerging markets.
After two quarters of declines, developing-nation assets will find a floor and remain stable in the final three months of the year as central banks from Argentina to Turkey move to defend their currencies, a Bloomberg survey shows.
Latin America eclipsed Eastern Europe, the Middle East and Africa as the region with the best prospects for currencies and bonds, while Asia was at the top for equities, according to the survey of 26 investors, traders and strategists. Mexico’s assets ranked as the most favoured following the country’s presidential elections, while Argentina and Turkey - which have faced homegrown problems that fueled contagion risks - were seen likely to continue underperforming, the September 25 to October 2 poll showed.
"Some confidence in EM has been restored following strong policy responses in both Argentina and Turkey, and a lighter political calendar ahead," said Marcelo Assalin, head of emerging markets debt at NN Investment Partners in The Hague, which oversees the equivalent of $280bn in assets.
"The majority of EM countries are in relatively healthy economic shape in both external and domestic terms."
But there are headwinds. The Federal Reserve’s rate path, China’s growth prospects amid an escalation in trade frictions with the US, and rising oil prices are among the biggest risks, the survey showed.
Below are the results of the survey:
Regions investors favoured, by assets:
For the chart below, respondents were asked to rank the most important drivers for the emerging markets.
Mexico was the favourite pick for all three assets - currencies, bonds and equities - that respondents expected to outperform in the current quarter. Optimism for the new trade accord that will replace the North American Free Trade Agreement and a more market-friendly stance from President-elect Andres Manuel Lopez Obrador have been supporting the assets. The Mexican peso has strengthened more than 4% against the dollar this year, the only currency that has risen among 22 major peers tracked by Bloomberg. Argentina and Turkey are at the bottom, with their currencies sinking almost 50% and 40%, respectively.
Below charts are inflation, economic and monetary policy outlooks for 11 emerging economies based on the survey.The survey participants:
- Asset Management One Co
- Banco Bilbao Vizcaya Argentaria
- BNP Paribas Asset Management
- Columbia Threadneedle Investments
- Daiwa SB Investments
- Deltec Asset Management
- Deutsche Bank Wealth Management
- Eastspring Investments
- FPG Securities Co
- Japan Bank for International Cooperation
- Hermes Investment Management
- Investec Bank
- Krung Thai Bank
- Manulife Asset Management
- Mitsubishi UFJ Kokusai Asset Management Co
- Mizuho Bank
- Mizuho Research Institute
- Natixis Investment Managers
- NN Investment Partners
- Nomura Holdings Inc
- Oanda Corp
- SBI Securities Co
- Seaport Global Holdings
- Skandinaviska Enskilda Banken
- Standard Chartered Plc
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