After a brutal 2018, asset managers believe that it might be a good time to reinvest money back into emerging market assets.
According to UTI International CEO Praveen Jagwani, 2019 offers a good entry point for EM assets.
Historically, the best time to buy EM assets is after EM currencies get battered. After a devastating year in 2018, EM equities seem to be perched on attractive valuations with some countries reflecting a structural improvement.
Nevertheless, Jagwani noted that EMs are not a homogeneous mix.
The MSCI EM index is almost a proxy China play given the heavy weight that Greater China commands on the index. To isolate value, one must separate China and invest in countries with strong growth metrics.
Peter Harrison, group chief executive at Schroders, said weaker growth in the US is likely to lead to US dollar losing ground against other currencies, and this is good news for emerging stock and bond markets.
It would not be a surprise to see EM markets, including China, recover in 2019 after a particularly bad year in 2018.
‘Our multi-asset team describes their valuation as provocatively low,’ he said in an latest investment note.
While the path to improving risk sentiment may well still be volatile, EM would be the biggest beneficiary of any attenuation of the global risks.
Western Asset believes EMs are the most undervalued asset class. It said extreme market pessimism has pulled the entire asset class downward in 2018, despite important positives in the sector, such as a remarkably subdued inflation and resilient sovereign and corporate balance sheets.
What’s more, index yield spreads between EM debt and developed market (DM) debt are near the wide levels seen in 2008 and 2016, while currency levels are 35% lower than just five years ago.
Additionally, the real yield of EM debt is at a 15-year wide versus the real yield of DM debt.