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London - Expect the FTSE/JSE All-share Index to rally, benefiting from curbs on President Jacob Zuma’s power, according to Nathan Griffiths, who helps manage about $750m at NN Investment Partners.
At the same time Deutsche Bank expects growing stability in domestic politics to benefit South African bonds. South Africa will probably avoid a debt downgrade, the German lender said.
Ahead of 2017, an overview of investment sentiment toward the developing economies in Europe, the Middle East and Africa (EMEA) can basically be summed up as "almost everybody loves Russia and wants to get as far away as possible from Turkey".
Money managers’ top calls for next year are centred on markets where the political climate is improving and assets are less vulnerable to external shocks arising from higher US borrowing costs and President-elect Donald Trump’s policy announcements.
Within politically stable markets, investors are looking for cheaper valuations and an ability to pace a rally in commodity prices.
Currencies
UBS Group says Russia’s ruble will offer the best-carry trade opportunity in EMEA over the next 12 months, with a potential return of 26%. Relatively high interest rates and recovering oil prices will drive the currency’s appreciation, the Zurich-based investment bank says.
JPMorgan Chase & Co. expects the Czech koruna to be resilient to global risk and outperform its peers due to support from a strong balance of payments. Morgan Stanley bets on a rebound in eastern European currencies, especially Poland’s zloty, if political risks in Europe don’t deepen.
Most people warned against buying Turkish assets.
James Lord, a market strategist at Morgan Stanley, is sticking to his bearish view of the lira, even though it appears to be cheap. He says the lack of focus on productivity growth as wages rise will continue to undermine the currency’s competitiveness.
Stocks
NN Investment Partners sees the Russian equity market as an “obvious candidate". Higher oil prices, a stronger ruble and easing inflation should encourage the country’s central bank to loosen monetary policy, said Griffiths.
Aviva Investors considers small-cap companies in developing markets attractive, especially in retail, health and industrials.
Ian Pizer, the London-based head of investment strategy and co-fund manager at Aviva, says heavy domestic ownership gives those companies a buffer. Capital Economics said banks in central and Eastern Europe, the Middle East and Africa are improving their financial ratios, though lenders in Russia and Turkey are still in the doldrums.
Bonds
Deutsche Bank AG expects growing stability in domestic politics to benefit Russian bonds.
Russia should gain from an improving relationship with the US, the German lender says.
Denmark-based Global Evolution Fonds favours Egypt’s local bonds, after yields rose to almost 20% and the currency’s value halved following its free float.
Global Evolution recommends Nigeria to investors who can make a “leap of faith” as he expects political stability to improve next year and the government to make a second attempt to float its currency.
Ghana’s peaceful transfer of power after its 2016 presidential election, and increased oil production make its local-currency notes and Eurobonds attractive, says Stephen Bailey-Smith, who helps manage $4.2bn at Global Evolution. Neuberger Berman Europe said Turkey’s foreign-currency bonds are cheap as it deems domestic risks to be fully priced in.
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