Emerging market equities continue to be one of the best performing asset classes of 2017; June marking the seventh straight month of portfolio inflows to emerging markets – the longest streak since 2014 (according to the Institute of International Finance).
As we have cited before, concerns remain over rising US rates which directly impact the ability to repay dollar denominated debt ($2tn in emerging market bonds and loans at present) which could well usher in credit downgrades to certain emerging markets economies. Should the BoE and ECB follow suit, the liquidity cushion that has aided the region could begin to deflate.
We remain slightly overweight in Emerging Market assets but the key remains to select funds with lower exposure to countries such as Mexico and Turkey (dealing with US trade issues and political turmoil respectively) as well as China due to their potential economic issues.
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