HEAD-TO-HEAD: Pinebridge vs Templeton

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Luke Ng, FE Analytics Asia

As US interest rates rise during tepid inflation and the US dollar strengthens, emerging market assets start to face headwinds.

The MSCI Emerging Market index was down 6.7% year-to-date, according to FE Analytics. During the same period one year ago, the index returned 28.6%.

“A strengthening of the US dollar triggers a broad sell-off in emerging market assets typically. Foreign capital tends to pull out of emerging market countries and get reinvested back in the US,” according to Luke Ng, senior vice president at FE Advisory Asia.

But other factors are also contributing to a sell-off by international investors. EMs face negative sentiment due to some countries in the grouping, such as Turkey.

While Turkey’s lira currency has been in freefall, the US doubled tariffs on Turkish steel and aluminium. The fragile economy and high level of private debt have led some analysts to believe a severe crisis is imminent. Given high debt levels in EMs generally, thoughts of the Asian financial crisis in the late 1990s has spooked some investors.

However, Chris Laine, senior portfolio manager at State Street Global Advisors, wrote in an investment note that issues in Turkey do not pose systemic risks to the broader financial system.

Laine believes the possibility of contagion to other larger emerging markets remains small, and the recent sell-off has provided attractive buying opportunities in emerging market equities.

“While we acknowledge the idiosyncratic risks within a few notable emerging market trouble spots, we think contagion risk from those smaller markets is relatively low,” he wrote in the note.

Against this backdrop, FSA talked to Ng, who provided a comparative analysis of the Pinebridge Global Emerging Markets Focus Equity Fund and Templeton Emerging Markets Fund.

Data: FE, fund fact sheets

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