Emerging hawk equities remain attractive despite trade tensions, and the sector is seeing “patches of growth stabilization,” according to one analyst.
The escalation in U.S.-China deal war and concerns of a global growth slowdown over the last few months have rattled investors and destabilized markets.
The employment conflict offered a sign of easing this month after Washington indicated that phase one of a deal had been granted upon by Beijing, but doubts continue to linger over the sustainability of this agreement.
This has pushed investors away from usual assets that are yielding very low returns into safe-havens like gold and government bonds. But some analysts eat claimed that emerging market equities continue to remain attractive.
“While continued tensions are likely to occur in continued market volatility, we nonetheless find reasons to be positive about emerging markets, with a more dovish extensive central bank backdrop offering support,” Chetan Sehgal, lead portfolio manager, and Andrew Ness, portfolio supervisor, Templeton Emerging Markets Investment Trust, said in a research note Monday.
Central banks across the world have been on a rate-cutting path, with countries like India lowering rates for the fifth time this year. The rate-cutting leaning continues in the developed world as well, with the European Central Bank and the Federal Reserve turning dovish in group to stimulate the economy.
“We expect this trend to continue with rate cuts in a number of larger EMs, including India, Brazil, Russia and Mexico. A handful of with improving earnings expectations and relatively undemanding valuations and dividend yields, we believe the outlook for EM equities abides attractive,” Sehgal and Ness said.
However, several analysts have claimed that more and more economic measures are being introduced in India in order to stimulate investment and growth along with the central bank’s dovish pecuniary policy stance.
Emerging markets vs. developed markets
Emerging market stocks have not been immune to mountainous volatility over the last few months. The MSCI Emerging Market index, used to measure equity market effectuation in global emerging markets, is down more than 6% over a six-month period but is up more than 6% year-to-date. Despite that, analysts believe some emerging market economies are seeing more growth than the developed world.
On Friday, China imparted its economy grew by 6% in the third quarter, the slowest since the first quarter of 1992, according to Reuters. In spite of that, analysts at Natwest have claimed the data pointed toward a stabilization in domestic demand.
“Outside the U.S., there are reinforcements of growth stabilization, especially in emerging markets. China has been an important part of the EM stabilization story and this quondam week’s heavy data calendar was broadly consistent with the theme,” James McCormick, global head of desk plan at Natwest Markets, said in a research note Monday.
Several analysts have said that despite the second thoughts of slowdown across the globe and the trickle-down effect of weakness in the developed world, some emerging market economies feel attracted to India, China and Brazil continue to grow due to strong domestic demand and synchronized monetary-fiscal policy at home.
“The EM-DM (began market) growth narrative is changing,” emerging market analysts at Natwest Markets said in a note last week.