Some investors may still be skittish about investing in emerging markets this year, especially with the events that happened late 2016, but analysts at Excel Funds still see them as good vehicles to differentiate away from traditional asset classes.
“While question marks remain on how much the US economy will expand as a result of Trump’s policies, we maintain that a world in which US growth is strong, is a positive environment for global markets, including developing economies,” it said in its 2017 Global Market Outlook
. “[W]e will look to target growth that is insulated from macro shocks.”
Eschewing broad-brush judgments of emerging markets, the analysts cited India as a good investment destination, where economic growth and equities are driven by domestic consumption. “[W] e are maintaining our overweight position in India going into 2017,” it said.
The fixed-income space also contains opportunities: a wide array of options covering 60 different countries and various interest rate cycles, as well as hard currency local currency bonds, give investors the scope to obtain greater yields than those from US and Canadian Treasuries.
“Having a more dynamic approach is key to generating alpha in this space,” the analysts said. “Our fixed-income portfolio management team continues to see value in hard currency bonds and has a preference for higher carry sovereign debt, particularly in a new global environment of rising US interest rates.”
Sweeping pro-business reforms happening in Brazil and Argentina make the team constructive on Latin America, with hard and local currency Brazilian bonds made particularly attractive because of the room to cut interest rates in the country.
“We are less constructive on emerging market forex, as our outlook for the US dollar is very strong versus a basket of emerging market currencies,” Excel Funds said in the report.
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Continuing pain foreseen for emerging markets