Joining the debate on whether now is the time to invest in emerging markets, Schroders chief economist and strategist Keith Wade said EM markets are not cheap.
“The apparent cheapness in emerging market equities emanates from areas like commodities and Chinese financials, which all have potentially serious balance sheet issues, so the scope for re-rating is limited.”
He believes EMs are fair value, if not expensive, and advised buying “only if you’re positive about the direction of risk appetite”.
A March rally in EM equity markets was driven by Brazil, he added. Although he expected some inflows to global emerging market indices in pursuit of the Brazil story, that is not a sufficient support in the context of soft trade and weak commodity prices.
A rise in commodity prices would be positive for EM trade in the short-term only.
“One of the key fundamental drivers of emerging market equity performance is export performance in US dollar terms,” he noted. However, “the trend so far has been decidedly negative for the emerging market outlook.”
On a global scale, trade volumes are expanding at a much slower pace today than historically, he said. Global growth over 6% is needed to see trade grow at the pre-crisis rate.
Wade earlier trimmed the forecast for global growth to 2.4% for 2016, compared to the International Monetary Fund’s estimate of 3.2%.
Contrarian views come from Europe, where fund buyers’ appetites for emerging markets has been on the increase since December, with almost 4 in 10 planning to increase their exposure in the next 12 months, according to data from FSA’s sister publication, Expert Investor.
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The MSCI Emerging Markets index has climbed since January, but opinion seems to be split on whether now is the right time to increase exposure.
