The Institute of International Finance came out last week with a dire prediction for emerging markets in 2016 that adds to the pain 2015 has inflicted on the likes of China and Brazil.
The big question isn’t whether emerging markets have faltered – they have – but rather if they’ve fallen enough for advisors to move assets from developed markets such as Canada and the U.S. overseas to countries whose stocks have been pummeled in recent months.
“Emerging markets have seen sharp losses in recent months,” said Charles Collyns, managing director and chief economist at the IIF. “Unlike the 2008 crisis, the reasons [for the outflows] are largely internal rather than external — related to rising concerns about economic prospects and policies in China, coupled with broader uncertainties about EM growth prospects.”
This past year’s been the polar opposite of 2014 when emerging markets experienced net inflows of more than $32 billion. If the downtrend into 2016 continues the temptation for advisors to nibble away at value buys in emerging markets could become increasingly attractive.
“I was just thinking about Canadian markets and emerging markets the other day,” said Assante Financial Management Ltd. advisor Glenn Szlagowski. “They’re getting hammered pretty good.”
Of course you wouldn’t have as much pulled from emerging markets as has happened so far in 2015 if there wasn’t reason for concern. However, both markets might be better choices than the big one south of us.
“As a matter of fact I’d probably choose them [Canada, Emerging Markets] over getting into the U.S. markets which are close to all-time record highs,” Szlagowski said. “People are really down on U.S. markets.”
As valuations get less enticing in the U.S. and more enticing overseas advisors are likely to explore emerging markets more closely in order to deliver better returns for clients.