Emerging market bulls starting to overtake the bears, says survey

The bulls are finally starting to outweigh the bears in the emerging markets (EMs). After two quarters of declines, developing-nation assets will find a floor, and remain stable in the final three months of the year as central banks from Argentina to Turkey move to defend their currencies, a Bloomberg survey shows.
 
Latin America eclipsed Eastern Europe, the Middle East and Africa as the region with the best prospects for currencies and bonds, while Asia was at the top for equities, according to the survey of 26 investors, traders, strategists.
 
Mexico’s assets ranked as the most favoured following the country’s presidential elections, while Argentina and Turkey, which have faced homegrown problems that fuelled contagion risks, were seen likely to continue underperforming, the September 25 - October 2 poll showed.

 

“Some confidence in EM has been restored following strong policy responses in both Argentina and Turkey, and a lighter political calendar ahead,” said Marcelo Assalin, head of emerging markets debt at NN Investment Partners in The Hague, which oversees the equivalent of $280 billion in assets. “The majority of EM countries are in relatively healthy economic shape in both external and domestic terms.” But there are headwinds. The Federal Reserve’s rate path, China’s growth prospects amid an escalation in trade frictions with the US, and rising oil prices are among the biggest risks, the survey showed.
 
As part of the survey, respondents were asked to rank the most important drivers for the emerging markets. Mexico was the favourite pick for all three assets — currencies, bonds and equities — that respondents expected to outperform in the current quarter. Optimism for the new trade accord, which will replace the North American Free Trade Agreement, and a more market-friendly stance from President-elect Andres Manuel Lopez Obrador have been supporting the assets. The Mexican peso has strengthened more than 4 per cent against the dollar this year — the only currency that has risen among 22 major peers tracked by Bloomberg. Argentina and Turkey are at the bottom, with their currencies sinking almost 50 per cent and 40 per cent, respectively.