By Rob Bush, Deutsche Asset Management
In the romantic whirlwind of global investing, no lover, it seems, is more alternately courted and then spurned than the emerging markets (EM). At times, investors are besotted, showering the asset markets of developing nations with capital as their infatuation with higher yields and stronger growth blinds them to all faults. But, before we know it, there’s an indiscretion – a capital control here, a debt crisis there. The once beautiful prospect of a lifelong partnership dissolves as investors and markets part ways, in search of their next paramours.
However, here at Deutsche Asset Management, we believe that the time is ripe for investors to rekindle their relationship with emerging markets. At our most recent Chief Investment Office (CIO) day, we moved to an overweight on the region and, fortunately, we allowed our heads to rule our hearts. Here are the main reasons why we think EM should again warrant your affection:
Macro Stabilization – After a tough 2016 for one or two of the emerging markets, notably Brazil and Russia, we think that Gross domestic product (GDP) growth and commodity prices have stabilized. Indeed, when it comes to growth, China may even surprise on the upside with encouraging signs of improving industrial production, steady infrastructure spending, and a Yuan that has been remarkably stable since its jitters in the summer of 2015 and at the beginning of 2016.
Export Pick Up – Although our view is that many emerging economies are actually a little less reliant on net exports than may generally be assumed, we nevertheless see outbound trade growing faster than imports in a number of the larger exporters, including Korea, Taiwan, Thailand and Russia.
Earnings Growth – Our view is that earnings will likely grow at more than 10% over the course of the next year in the MSCI Emerging Markets Index, and that should help to drive our forecast for 1,000 in the benchmark by March 2018.