BlackRock sees emerging stocks almost recouping last year's loss

Gordon Fraser of BlackRock, who made the call to load up on Brazilian companies just before an election-spurred rally late last year, predicts emerging-market (EM) equities will recover most of their 2018 losses this year.

In the face of a slowing global growth, the Federal Reserve is unlikely to raise rates this year, causing the dollar to weaken and improving the flows into EMs, said Fraser, a developing-market equities fund manager. 

He is betting on the companies gaining from a weak US currency, and those tied to China advancing on prospects of an improvement in the economy.

“Markets should recoup most, if not all, of their losses from last year,” Fraser, who helped manage the firm’s approximately $40 billion of active EM equities in 2018, said. “All the key challenges EMs had last year have been surmounted, and the global liquidity has returned to EMs’ favour.”

Signs of improving liquidity include falling rate differentials between the US and other markets, rate cuts and talk of similar actions at other central banks, and China’s various measures to support its economy, he said. The risks from a US-China trade war have also subsided, he added.

Fraser, who says they want to buy when there’s a crisis, saw his portfolio gain as Brazil equities surged following the victory of Jair Bolsonaro in October, after buying them in June and July. 

He subsequently took profits from the Brazil market’s rally. He also went underweight on stocks in Turkey months before the blow-up in the Turkish lira in 2018.

Fraser’s main fund had an annualised total return of 18 per cent in the past three years through January, compared to 15 per cent in the EM gauge, according to the firm.