2020: Investors optimistic over EM equity returns

The majority of investors believe emerging markets equity will offer good risk-adjusted returns in the coming year, a study has found.

Despite ongoing headwinds from the US-China trade war and social unrest in many emerging markets countries, most investors believe the prospect of a trade deal and improving monetary conditions creates opportunities in these regions.

Nearly 70% of investors rank emerging market equity highly for risk-adjusted returns in 2020, the report by NN Investment Partners (NN IP) found.

This is a marked improvement compared to last year, when just over half of investors had a positive view on emerging market equities.

Yet investors may not fully be taking into account the challenges facing emerging markets, according to Patrick Moonen, principal strategist for multi assets at the fund manager.

He said: “In addition to protests in Hong Kong and spreading social unrest across the globe, emerging markets are battling continued trade uncertainty that will not be resolved with an interim deal.”

He added: “Weaker currencies are also limiting the scope for further monetary easing. The region has dramatically underperformed in 2019, making it attractively valued relative to developed markets.”

Investors are also favouring UK equities, with nearly 50% ranking the market highly in terms of risk-adjusted returns.

“This is surprising, as Brexit-related uncertainty remains a headwind and will continue even after a withdrawal bill is passed,” said Moonen.

“A possible explanation for investors favouring UK equities could be their current valuations, or it could be because investors are hoping for a big fiscal stimulus.”

©2019 funds europe

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