Emerging Markets Outlook - June 2020
Top Whitepapers on EM Debt and Chinese Equities
China recently enacted a new 'National Security Law' for Hong Kong, which may result in a loss of autonomy for the city and jeopardize its status as a financial hub. The law could also negatively affect the ongoing trade negotiations (and the Phase 1 trade deal) between China and the United States.
The following papers aim to bring you up to speed on the latest developments in emerging markets, specifically as they relate to the outlook for EM debt, Chinese equities, and EM real estate.
The Case for Greater China Exposure (Matthews Asia, Dec 2019)
For compliance reasons, this paper is only accessible in certain geographies
Matthews Asia states that institutional investors are drastically underweighted to Chinese equities in global portfolios. As China is also becomimg a larger part of several global indices, a good case can be made for a standalone allocation.
China Fixed Income: Investing in a new world (UBS AM, Jun 2020)
UBS AM describes how three megatrends - the rise of the RMB as a reserve currency, demographic change and the growth of China's pension industry, and China's rising status as one of the world's largest economies - will make positioning in China fixed income an essential part of global asset allocation strategy in the future.
EM Debt: Fallen angel risk (PineBridge Investments, May 2020)
Ratings agencies may be quick to downgrade EM corporates, increasing the rate of 'fallen angels' in emerging markets. However, analysis of the underlying fundamentals may yield some opportunistic investments for EM portfolio managers.
Political Struggle in Hong Kong, China and the USA (Janus Henderson, Jun 2020)
For compliance reasons, this paper is only accessible in the United States and Canada
China's new National Security Law clarifies that Hong Kong's path forward is very much aligned with Beijing's. This has drawn harsh responses from U.S. politicians, and could have adverse effects on trade-related negotiations between the U.S. and China.
Gulf Countries: On the squareness of pegs (Eaton Vance blog, Jun 2020)
For compliance reasons, this paper is NOT accessible in the United States and Canada
Several of the countries within the GCC (Gulf Cooperation Council) have historically pegged their local currencies to the dollar, largely for stabilizing effects and due to receiving dollar-denominated revenues from oil proceeds. But are the old pegs worth maintaining, or would a free-floating currency better suit their economic needs?
How Will Emerging Market Debt Emerge from the Crisis? (Capital Group, May 2020)
For compliance reasons, this paper is only accessible in certain geographies
Kristie Spence, Portfolio Manager at Capital Group, discusses the ways this crisis has been different than other crises and how emerging market debt has been affected.
Chinese Equities: COVID-19 & US-China Tensions (S&P Dow Jones Indices, Jun 2020)
Priscilla Luk, of S&P Dow Jones Indices, discusses earlier comments about China's reaction to the pandemic, as well as the outlook for various Chinese equity sectors going forward.
EMs Join QE Club: The context you need (Wellington blog, Jun 2020)
Central banks in emerging markets are now starting to engage in unconventional monetary policy actions such as asset purchases (a.k.a. - quantitative easing).
Diversification Potential: Untapped alpha in non-US equities (Intech, Jun 2020)
For compliance reasons, this paper is only accessible in certain geographies
Intech presents non-US indexes as an alternative alpha source for a diversified portfolio. They argue that these assets are too often passed over, and recommend a closer look using their latest statistical approach.
Chinese Onshore Bonds: Policy signals and market structure (Invesco, 2020)
For compliance reasons, this paper is only accessible in certain geographies
Invesco details the importance of some of the top indicators that are relevant to the onshore bond market in China, including liquidity conditions, repo rates, and other signals.
Navigating an Uncertain Outlook for EM Debt (Nuveen blog, May 2020)
Given the ongoing economic and public health woes in emerging markets, Nuveen states that the outlook for emerging market debt in the near-term may be more uncertain. From a longer-term standpoint, EMD allocations may prove attractive for several reasons.
FTSE Russell China Bond Research Report (FTSE Russell, Jun 2020)
FTSE Russell reviews Q1 and Q2 activity within Chinese bond markets. Chinese government bonds actually experienced significant foreign capital inflows in March, during the height of the pandemic.
Resilience in Emerging Markets Debt (MFS blog, Jun 2020)
Historically, the emerging markets debt asset class has proven fairly resilient to drawdowns and crises. This paper examines recent volatility against EMD's historical performance.
Real Estate Outlook: APAC (UBS AM, May 2020)
UBS Asset Management's APAC Real Estate Outlook emphasizes the pandemic's uneven impact across APAC real estate markets. Much depends upon how soon the global economy sees a return to normality.
EMD: The art of differentiation (Aviva blog, May 2020)
For compliance reasons, this paper is only accessible in certain geographies
Despite potential sovereign defaults on the horizon and relatively low recovery rates compared to other markets, Aviva explains that EM corporate debt may offer investors attractive yields and better credit metrics than their peers in the West.
Fixed Income Insights: EM's offer value (PineBridge Investments, May 2020)
In this issue of PineBridge's Fixed Income Asset Allocation Insights, the authors stress that opportunities may still exist in EM debt, where valuations are more attractive.
Alpha: Made in China (Man Institute, 2020)
The market for China A shares is inefficient and diverse, in addition to being liquid and containing abundant amounts of information. This could be a winning combination of attributes for investors.
Emerging Markets Debt Update (MetLife IM blog, Apr 2020)
What vulnerabilities do sovereign issuers have, and what are the levers that they can utilise to weather the current storm? Will fiscal and monetary channels or reserve buffers provide sufficient aid?
Podcast: A view to the future – China beyond the pandemic (S&P Global, May 2020)
Priscilla Luk of S&P Dow Jones Indices discusses the economic recovery taking place in China, the relationship between China and other emerging markets, and Chinese deleveraging.
