Emerging markets “show resilience”

Emerging markets are increasingly demonstrating their economic independence from developed markets, with economies across the sphere growing significantly while Europe and North America stagnate or decline, said Ashmore’s Jan Dehn, head of research.

Dehn notes the economy of the Philippines has flourished this year, growing 7% in the second quarter year-on-year, well ahead of analysts’ expectations. He expects this strong performance to continue as the government implements much needed infrastructure-spending programmes.

Elsewhere, emerging markets are showcasing their resilience despite political upheaval. Despite a recent coup attempt in Turkey, the country’s sovereign external debt rating remains unchanged at BBB-, investment grade.

Moving forward, emerging market financial vehicles will also become available to Western investors with JP Morgan announcing it would launch a range of Sharia-compliant sukuk bonds.

While some have expressed concerns that a further rise in Federal Reserve rates will harm emerging markets, Dehn does not think the asset class is seriously threatened by the prospect.

“Earlier this year, markets had priced in three Fed hikes and emerging market FX [foreign exchange] was still up versus the dollar, while emerging market bonds strongly outperformed developed market bonds. We think emerging markets will perform strongly after a hike,” he said.

There are signs elsewhere that emerging markets are returning to investors’ favour, with flows to the region’s bond exchange-traded funds in June and July reaching $5.7 billion (€5.1 billion). Antoine Lesné, a head of strategy and research at SPDR ETF, said this “may have signalled that the time is right to go back to the emerging world”.

©2016 funds europe