Selloffs in developing-nation currencies are likely to get worse, survey shows
With the Federal Reserve still boosting interest rates and President Donald J. Trump still raising tariff threats, the bottom for emerging markets remains some ways away, market players say.
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The selloffs in developing-nation currencies and stocks are likely to continue in the second half of 2018, a survey of 20 investors, traders and strategists by Bloomberg shows. It's not all doom and gloom, though — bonds may fare better for their relative safety, and some particular markets might see gains, according to the June 26-July 4 poll.
The allure of riskier assets is starting to fade amid escalating U.S.-China trade frictions and the Fed's continuing quantitative tightening. Currencies and equities completed their worst quarter since the worries about a China hard landing back in 2015. A Bloomberg Barclays index of emerging-market local-currency debt posted its first three-month drop since 2016 as investors became more selective. All three measures have made little headway so far in July.
"Investors aren't done worrying about the outlook for emerging markets, as we expect the environment for a stronger dollar to continue," said Hideaki Kuriki, chief fund manager in Tokyo at Sumitomo Mitsui Trust Asset Management Co., which oversaw the equivalent of $90 billion as of March. "The U.S. economy is strong on a relative basis and the dollar and yields there are also high — and that's why emerging markets will continue to struggle."
Read here what the last survey showed.
Below are the results of the survey:
These are the regions investors favored by asset:
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For the chart below, respondents were asked to rank the most important drivers for the developing markets.
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In the second half, the Russian ruble, South Korea's bonds and India's stocks are most favored, followed by Poland's currency, debt and equities. Argentina, which has had to raise its benchmark central bank rate to 40 percent this year to defend its currency, came at the bottom of the list for all the asset classes. (The survey was conducted prior to Turkey's president removing senior officials respected by investors.)
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Survey respondents were also asked about inflation, general economic and central bank monetary policy outlooks for 11 developing economies.
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The survey participants:
AllianceBernstein
Amundi SA
BlueBay Asset Management
BNP Paribas Asset Management
CIMB Thai Bank Pcl
Columbia Threadneedle
Daiwa SB Investments
Deltec Asset Management
Deutsche Bank Wealth Management
FPG Securities Co.
Fullerton Markets
Japan Bank for International Cooperation
Krung Thai Bank Pcl
Mitsubishi UFJ Kokusai Asset Management Co.
Mizuho Bank Ltd.
NN Investment Partners BV
Renaissance Capital
SBI Securities Co.
Sumitomo Mitsui Trust Asset Management Co.
TD Securities Inc.