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Emerging markets may be trade of decade - BlackRock

Mar 08 2019 05:00
Ben Bartenstein and Carmen Reinicke, Bloomberg

Emerging markets could be the trade of the decade as investors return to riskier assets, manufacturing data improves and growth across the developing world rebounds, according to BlackRock.

Amer Bisat, a managing director at the world’s largest money manager, said there’s more value in the developing nations over the long haul as investors flock to higher-yielding assets and emerging markets expand at a faster rate than the most-industrialised nations. Meantime, Chinese growth will probably rebound in the second half of 2019, providing a tailwind to riskier securities.

“EM is no longer the hated asset class that it used to be,” said New York-based Bisat, a former senior economist at the International Monetary Fund who specialises in debt.

“You’ll wake up 10 years from now and finally pension funds, insurance companies and other investors will have increased their allocations.”

BlackRock’s optimism toward emerging markets coincides with the best start to a year for developing-nation debt since 2012. A recent burst of dollar strength has halted the rally, although Bisat said it’s tough to see the greenback climbing aggressively when the Federal Reserve seems resolute in taking a patient approach to tightening. On that backdrop, there could be particular value in Brazil, South Africa and Indonesia, he said.

The Beirut native said he expects “positive surprises” in Brazil on the back of President Jair Bolsonaro’s overhaul of the social security system, which supports the real. Investors will have to ride out some volatility first, but overall South America’s largest economy is heading in a “very promising” direction, he said.

Meantime, Bisat said South Africa presents an interesting investment possibility as traders may become overly pessimistic ahead of the election in May. Asian currencies also look quite cheap, particularly Indonesia’s rupiah, he said.

Many of Bisat’s top picks are in nations where big events will move the needle for markets. Aside from watching the vote in South Africa, where support for the ANC has slipped, he’s monitoring the Argentine presidential election in October, how Mexican authorities deal with state oil giant Pemex and the worsening economic crisis in Venezuela.

“The biggest uncertainty is dealing with the legal complexity of restructuring their debt,” Bisat said. “Venezuela has huge potential. The growth in that country could be enormous for years.”

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