Emerging Markets: Last refuge in a low-return desert?
Traditional risk premia are currently subdued, and interest rates in key developed markets outside the US look likely to remain historically low for some time, leading investors to look elsewhere to generate returns. We believe that emerging market equities and bonds offer attractive opportunities through their improving fundamentals and attractive valuations.
In fixed income portfolios we believe investors should explore a fundamentals-based approach that places quality at the heart of portfolio construction, while embracing less trading in this fractured liquidity environment. Read more here
In equities, the risk of more protectionism in the US is increasing investors’ concerns about emerging market (EM) assets. However, global trade retrenchment since the Global Financial Crisis has encouraged EM countries to favour their own domestic economic dynamics; a trend likely to continue or even accelerate, in our view. However, investment selection is now even more important as many individual companies could be heavily exposed to exports and thus potentially disrupted by targeted protectionism. In EM equities, being an active investor is now more essential than ever, in our view. Read more here
China’s misunderstood debt challenges
It would be wrong to underestimate the challenges China faces as it tries to sustain growth, rebalance its economy and manage its debt load. But we believe there are important backstops in place which make the likelihood of a sharp financial meltdown very unlikely over the next two to three years. Moreover, it is important to note that China runs a relatively closed capital account with powerful controls, further mitigating the risks of broad-based domestic capital flight.