BTIM portfolio specialist Chris Adams said while markets with greater exposure to US monetary policy will face “headwinds” as quantitative easing (QE) winds back, there are several opportunities in economies that will benefit from US economic improvement and which investors can “exploit”.
“Much of the liquidity from low interest rates and QE found its way into EM shares, bonds and property as investors sought higher yields,” Mr Adams said. The implication is that these same EM are vulnerable as QE is wound back and rates are expected to rise.
“While there are emerging economies and markets which will suffer as liquidity is withdrawn, it is a mistake to treat EMs as a homogenous whole,” he said.
Mr Adams also said there are many emerging markets that will benefit from the US economic improvement which presents an opportunity for investors.
“In our view, the consensus that all [emerging markets] will struggle as liquidity drains away is wrong. We believe that there is an opportunity to be exploited,” Mr Adams said.
“It’s ironic that even as developed market equities have been outperforming EM, companies in the emerging world have actually been doing better in terms of delivering earnings per share to their investors since the GFC,” he said.
“Changing demographics continue to favour EM investment. The average EM sits in a “sweet spot” of per capita GDP where historical analysis suggests that discretionary spending rapidly accelerates,” Mr Adams said.
“The ‘demographic dividend’ in countries such as Indonesia and India, rapid urbanisation in China and the rise of a middle class everywhere are all throwing up new investable opportunities.”
