| NEW YORK
NEW YORK Dec 27 A number of global fund
managers say they are buying emerging market assets for 2017
after the beating the sector has taken since the U.S. election
in November, even though credit rating agencies have a less
Since the election of Donald Trump as U.S. president,
emerging market stocks are down nearly 7.0 percent, based on the
Morgan Stanley Capital Index, and the yield spread of
emerging market bonds over benchmark U.S. Treasuries is
wider by 10 basis points, reversing some of the gains seen
earlier in the year.
On Nov. 8, the date of the U.S. election, the EMBI Global
year-to-date total return was 14.04 percent, and a week later,
on Nov. 14, it had halved to 7.60 percent.
Currencies such as Mexican peso and the Turkish lira
have tumbled 10 percent or more in the wake of the
U.S. President-elect Trump has pledged to impose
protectionist trade policies and restrict immigration which
would likely damage most emerging market economies.
The Washington, D.C. bank lobbying group, the Institute for
International Finance, reported this week that $23 billion has
flowed out of emerging market funds since Oct. 4, with $18
billion of that taking flight since Nov. 9.
"The magnitude of outflows has diminished significantly in
recent weeks, but the direction has remained persistently
negative," said Scott Farnham, an IIF research analyst.
FUND MANAGERS POSITIVE
BlackRock, the world's largest asset manager is expecting to
reap solid gains from all emerging market asset classes,
especially bonds, the firm's chief fixed income strategist, Jeff
Rosenberg said at the company's recent global outlook summit.
Other global fund managers also see a rebound on the
Ricardo Adrogué, head of emerging markets debt at Baring
Asset Management Ltd, said analysts, including ratings agencies,
are confusing structural versus cyclical problems when
evaluating the sector.
"Our assessment of emerging markets is actually
strengthening at the time that developed market institutional
framework is weakening," he said.
Similarly, Michel Del Buono, head of portfolio strategy at
Makena Capital Management LLC, who oversees $18 billion across
asset classes, also has a bullish outlook.
"If you're exposed in the right way and you have a long-term
perspective you should keep a significant weighting to emerging
markets," he said.
Del Buono said he favors investments in things like
healthcare, retail and for-profit education in places like
Nigeria, Indonesia and the United Arab Emirates.
If prices keep dropping, Del Buono and Adrogué said they
would keep adding to their positions, echoing what other
investors told Reuters,
Morgan Harting, lead portfolio manager for multi-asset
income strategies at AllianceBernstein said he is especially
bullish on the energy sector and is investing in countries like
Russia and Brazil as well as companies like Hungarian oil and
gas group, Mol Group.
"As we get more economic data to validate that the
underlying fundamentals in these economies continues to firm
then people are going to get more aggressive in investing in
emerging markets," Harting said.
CREDIT RATING AGENCIES LESS CONFIDENT
However, credit ratings agencies S&P Global, Moody's
Investors Service and Fitch Ratings have recently lowered
positive credit outlooks and written even more negative outlooks
for emerging markets. Moody's even highlighted the risk of
capital flight and potential weakness in the banking sector.
Diane Vazza, managing director of global fixed income
research at S&P Global ratings agency, noted worries about
geopolitical risk and energy companies not being able to adjust
to a longer-term trend of lower prices for oil and gas.
"About a third of (emerging market) corporates have negative
outlooks," Vazza told Reuters. "So we expect additional downward
pressure across emerging markets."
(Reporting by Dion Rabouin; Editing by Daniel Bases)