Amundi sees sustainable rally in EMs in late 2019


SINGAPORE • A sustained rebound in emerging markets (EMs) may be almost a year away, and investors should be wary of any bounce after US mid-term elections, according to Europe’s largest asset manager.

Ultimately, it will take an American economic slowdown and the end of US Federal Reserve (Fed) monetary tightening for the asset class to shine again, said Yerlan Syzdykov, global head of EMs. In the meantime, Syzdykov sees opportunities in dollar- denominated bonds from developing nations, a strategy that offers some yield premiums without exposure to exchange-rate and inflation pressures.

Investors might be tempted to dive back into EMs as soon as December, if US President Donald Trump pivots from his current protectionist phase toward a “more pro-business” approach on trade issues, according to Syzdykov. He anticipates that the presidential campaign will entail appealing to sponsors and donors that oppose an escalation of the trade war.

“That probably would be the moment when the Chinese, as I understand, propose this mega-deal to the US to settle their differences with regard to the trade war,” said London-based Syzdykov, who oversees €39.4 billion (RM189.12 billion) in EM bonds and stocks. “We may have a bit of a December rally, but it’s not going to be sustainable and justifiable from the perspective of the fundamental picture.”

The best time to be long EMs will be the second half of 2019, when the US economy starts to decelerate as the tax-cut boost wears off, the Fed keeps a lid on interest-rate hikes and the dollar loses steam, Syzdykov said in an interview in Singapore on Wednesday.

That suggests further pain for EM stocks that have tumbled into a bear market, with the MSCI EMs Index down more than 25% from a high in January. On the currency front, one gauge is down 5.5% this year. Among his specific picks and avoids:

• Dollar bonds of Andean countries such as Chile and Peru, which benefit from a “very solid policy making framework” and “fairly stable” economics and politics.
• Debt linked to oil, such as Nigerian bonds, though Amundi is neutral on Russia because of that country’s tensions with the US.
• Turkey’s dollar bonds, now that the policy mix there has started to change. Amundi has been adding to its holdings in the past month.
• Exposure to Argentina is being reduced. “Valuation-wise it still is attractive, but I think the fear in Argentina is there would be a political change given the pressures on the economy,” he said.