Emerging markets feel pinch

Emerging markets, viewed as an engine for global growth and a source of attractive returns in the aftermath of the 2008 financial crisis, have stalled recently. However, Southeast Asia has proven to be more resilient than many others.

Citi Private Bank senior investment strategist Haren Shah says emerging markets have performed in sync with developed markets in the present cycle as the sell-off in equities has been across the board. 'Selling has generally been broad-based, but defensive high-yield stocks have done better. Sector-wise, health care and consumer staples stood out,' Shah says.

In Asia, Shah says Indonesia, the Philippines and Thailand were the best-performing emerging markets due to their stronger fundamentals compared with their counterparts.

He says emerging markets performed worse than global markets as they tend to give higher returns. 'If you look at the [emerging markets] MSCI EM Index, it's down almost 21 per cent since April, while the MSCI World is only down 16.8 per cent,' he says.

He says although value is showing up in emerging markets, there has been a lack of investor interest. 'Investors are currently quite risk-averse, which has been evident by the negative inflows into emerging markets for the past seven weeks. The average duration of outflows in the past cycles has been seven to eight weeks, so we may be close to the end of this cycle,' Shah says.

Delphyne Deturmeny, portfolio manager at Credit Agricole Private Banking, says after their strong performance over the past decade, like the rest of the equity markets, developing markets have taken a battering since the beginning of the year. 'Emerging markets decoupled from developed markets for a short period ranging from the end of last year to the first quarter of this year, primarily as they were the first countries to enter a cycle of monetary tightening as part of their normalisation process,' Deturmeny says.