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Can Emerging Markets withstand global monetary tightening?

  • ,  Chief Executive |
  • 10 May 2018
  • Updated 08 Jun 2018


Emerging market assets have entered a more challenging phase over the last few months. MSCI's EM equities benchmark is down 10% from its January peak, while JP Morgan's EM bond index is down 6% since April 18. But should EM investors cut and run, or should they buy the dips?

Traditionally, rising U.S. interest rates and a strong dollar have negatively affected returns in emerging markets, but Barings' Head of EM Debt doesn't believe this relationship will hold true in 2018. As the article below from AB shows, EM market upswings normally last for several years. Read on for a variety of perspectives...

Savvy Investor

Can Emerging Markets Withstand Global Monetary Tightening? (Barings, 2018)
Ricardo Adrogue, head of Barings' EM debt group, believes that despite the onset of quantitative tightening, EM asset prices are likely to be most affected by global financing flows, which are projected to be remain very supportive.

Local currency emerging market debt: deserving of a closer look (BNP Paribas AM)
BNP Paribas takes a closer look at emerging market debt denominated in local currencies, examining issuers in multiple countries and at different stages in their local economic/monetary policy cycle.

US-China trade dispute may rankle markets but shouldn't derail global economy (Capital Group, 2018)
(For compliance reasons, this paper is only accessible in certain geographies)
Trade tensions and recent protectionist policy moves are still affecting markets. Capital Group looks at the relationship between the United States and China and examines the implications of recent actions by both parties.

Will the Emerging-Market Equity Rally Resume? (AB blog, May 2018)
(For compliance reasons, this paper is only accessible in North America and South America)
Because emerging market equity cycles typically last for several years, investors should pay less attention to short-term EM market volatility, including recent warnings in the Wall Street Journal.

Opportunities in Emerging-Market Local Currency Bonds (Franklin Templeton, May 2018)
Franklin Templeton provides several reasons why emerging markets investors should consider local currency bonds such as hedging inflation and reducing external debt vulnerabilities.

Wait and See? China's Big Bond Challenge (State Street, May 2018)
State Street looks at Bond Connect, a trading channel allowing institutional investors to allocate to Chinese debt, and examines the challenges that still remain before foreign investment can truly accelerate.

Reaping the Returns: 25 years of EMD investing (NNIP, 2018)
(For compliance reasons, this paper is only accessible in certain geographies)
In the 25 years since the establishment of NNIP's EMD hard currency strategy, the landscape has evolved substantially. Economic conditions in emerging markets have improved and the resulting returns for EMD have been compelling.

Responsible investing in EM bonds (Invesco Risk & Reward magazine, 2018)
(For compliance reasons, this paper is only accessible in certain geographies)
On p.24 of their Risk & Reward magazine, Invesco's article titled 'Responsible investing in focus: Emerging market bonds' asks several questions on the intersection of emerging markets bonds and responsible investing.

EM corporate debt: Opportunities still attractive? (Wellington, Apr 2018)
About 60% of EM corporate debt has an investment grade rating, and this figure is increasing due to long-term fundamental trends within these economies. Wellington examines current opportunities within this asset class.

EMD: Stronger fundamentals are first line of defence in trade war (LGIM, 2018)
(For compliance reasons, this paper is not accessible in the U.S. and Canada)
Despite the recent escalation of trade tensions, LGIM believes that compelling opportunities remain in emerging markets, providing that investors know where to look.

Actively Benefiting from Emerging-Market Small Caps (Franklin Templeton, 2018)
(For compliance reasons, this paper is only accessible in the EMEA region)
Franklin Templeton explains why the EM small-cap space could be an attractive proposition in the current investment climate. However, common misconceptions about EM small caps conceal some of their underlying strengths.

Investing in a World of Overpriced Assets (Jeremy Grantham, GMO Dec 2017)
Jeremy Grantham ponders how he would manage money if the failure to meet a 10 year return target would result in death, and concludes that Emerging Markets would be the safest long-term bet.

FTSE Russell China Bond Research Report (Apr 2018)
Foreigners hold less than 2% of Chinese onshore debt, but investors' appetite for Chinese bonds is increasing. FTSE Russell details the current credit-related reforms being made by the Chinese government and delves into Chinese debt.

Why China A-Shares, Why Now? (William Blair, 2018)
Members of the Global Equity team at William Blair elucidate the opportunity for foreign institutional investors to allocate funds to a relatively new equity market - the A-share market in China.

Global Asset Managers in China: Riding the Waves of Reform (Oliver Wyman, 2018)
The private securities fund business could allow global asset managers to gain a foothold in China, providing them with a unique vantage point of the opportunities and challenges within China's unique market environment.