Emerging markets back in vogue amid global slowdown
Fund managers are again filling their portfolios in markets offering more flexibility, writes Carrie Lam
Investing in emerging markets is often a risky bet. But under the bleak financial cloud covering the global economy, this is a chance many are willing to take, which is the reason developing countries are appearing back in fund managers' portfolios.
Gary Dugan, chief investment officer, Asia and Middle East, at Coutts, says the key difference between emerging countries and developed markets is that the former have the flexibility to do something meaningful to stimulate growth.
He believes that emerging market debt will continue to be re-rated and emerging market yields could continue to fall relative to developed market yields.
The managing director and portfolio manager in BlackRock's global bond portfolio team, Owen Murfin, believes "emerging market securities should play an increasingly important role in any fund manager's portfolio".
He says these investments act as a great diversifier and allow investors to gain access to regions with favourable growth and demographic dynamics, and to governments with strong fiscal profiles.
He says local currency South Korean government bonds are top of their list, where slowing growth has opened the door for significant Central Bank easing.
On the other hand, Murfin says while investors should be wary of geopolitical risks in the Middle East, they should also take into account sovereign risk in fiscally strong markets, such as Qatar and Abu Dhabi, where he believes the geopolitical risk is fairly priced. In his opinion, oil exporter such as Russia, which would benefit from higher oil prices without the same geopolitical risk, is also a smart investment.