Will the year of the pig bring good fortune to Emerging Markets?

investment viewpoints

Will the year of the pig bring good fortune to Emerging Markets?

2019 is host to the year of the Pig, which, according to Chinese astrology, symbolises a year of joy, friendships and success with wealth. Superstitions aside, a number of metrics have signalled a similar conclusion of increased wealth within EM markets, fuelling current investor confidence.

As shown, approximately USD 23.1bn flowed into EM bond and equity dedicated funds in January, indicating a significant rebound of uncertainty that gripped the region from H2-2018

 

Chart (765x294).jpg

Source: J.P.Morgan, EM flows, Global EM Research, 31 January 2019.

 

In our view, this is just the start. Positive indicators for further growth include a wide discount in EM equities compared to those in developed markets, and increased economic stabilization in EM combined with the potential weakening of the US dollar.

Additionally, there is still significant political pessimism (trade wars) being priced into EM assets, which could snap back at any catalyst for an improved perception. Finally, and not least, European instability including Brexit, Italy budgeting, social French unrest, and Merkel ‘s succession are all driver of inflows toward EM markets.

We continue to see multiple opportunities arising from what appears to be asymmetric market behaviour principally within domestic demand sectors and stocks, which should be the main beneficiaries of economic growth in this coming cycle.

In summary, we believe the year of the pig holds the potential to be a prosperous year for emerging markets, and in our view, our strategies are well positioned to take advantage.

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