With emerging market stocks having fallen almost 7% since President Elect Donald Trump won the US election, a number of fund managers are bullish for the region’s 2017 prospects. The head of emerging market debt at Baring Asset Management believes that ratings agencies are confusing structural versus cyclical problems when evaluating the sector, suggesting that “emerging markets are actually strengthening at the time that developed market institutional framework is weakening”.
2016 was a very positive year for commodities and should the trend continue, Brazil will be well positioned to benefit; similarly with Russia, who can hope to benefit from potentially improving ties with a Trump led USA. Chinese corporate debt, currently standing at 169% of GDP, remains a significant issue and the funds we select will tend to reflect this with an underweight allocation to the region.
Overall, for 2017, we believe emerging market holdings will continue to play an important role in a diversified portfolio given a client’s time horizon and risk attitude.
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