At current levels, emerging market local currency debt appears to offer value, Threadneedle Investments chief investment officer Mark Burgess said, adding that he does expect both the hard and local currency markets to remain volatile in the short term.
“Emerging equities reflect concerns not only around Russia and Ukraine but also the weaker growth outlook in Brazil and China,” Mr Burgess said.
“In commodities, Russia is a significant oil player, supplying 30 per cent of Europe’s gas, with 50 per cent of that piped through Ukraine,” he said.
“Any move to curb Russian oil exports by the EU could easily drive Brent crude oil into the $140-160 a barrel range.”
Threadneedle does not expect major sanctions against the country, and notes that Western capital markets have largely ignored the crisis.
“Foreign exchange markets, outside of the obvious areas such as the rouble, have also ignored it,” Mr Burgess said.
Developed market equity and bond markets have recently been driven by other factors such as the headwinds from a stronger pound for UK equities, the severe weather in the US and the weaker than expected European corporate results,” he said.
“Finally, core government bond investors have been focused on the softer US macroeconomic data, which has seen 10-year Treasury yields fall.”
Markets are not expecting further intervention or action by Russia, Mr Burgess said, but Threadneedle will be keeping an eye on the situation.
