Investors seek refuge in emerging markets as recession risk hits the US

According to the Markets Live Pulse Survey, investors are looking to increase their bets on emerging markets. This is a sign that the asset class has become a favorite among those who are wary of an American recession.

The 234 money managers and analysts surveyed expect to increase their exposure to developing assets over the next year, despite growing concerns about a possible downturn and Federal Reserve’s future. They say the asset class could offer protection if the US enters a recession as a result of the central bank’s battle against inflation.

Justin Leverenz manages the Invesco Developing markets Fund which is one of the best performing major emerging equity funds in this year.

He said that the emerging market landscape has significant value. “In the past 10 years, EM economies have not only become more resilient but they have also been neglected almost completely by global investors.”

Survey respondents stated that 49% said they believe that despite a US recession causing a decline in emerging asset prices, the underlying growth of these assets and their attractive valuations would still allow them to outperform other mature assets.

Malcolm Dorson is a money manager with Global X Management, based in New York. He also stated that emerging markets were better positioned to deal with the pandemic than major economies. This helps certain developing countries avoid the policy and stimulus hangover that threatens the US and Europe.

Devan Kaloo is the global head of emerging market at abrdn Plc. He said: “We believe that EM has the potential to grow, valuations are low, and EM’s long-term appeal remains undiminished.”

The survey indicates that stocks will be responsible for this relative outperformance. According to 41% of respondents, stocks are the best investment for emerging markets in the next year.

This optimism is at least partly due to the relative opportunities. The MSCI Emerging Markets Index has only risen 2.2% this year compared with a 9.2% increase in the same gauge for developed markets.

“We need emerging countries that can sustain reasonable output levels and businesses that create value,” said Lewis Kaufman. His $3.7 billion Artisan Developing World Fund outperformed 99% US-based peers this year.

Respondents also grouped around Southeast Asia as a region with many opportunities. The majority of respondents said that assets in the region would offer the best returns for emerging markets over the next two years.

Aninda Mitra, macro and investment strategy at BNY Mellon Investment Management Singapore, said that Southeast Asia was one of the most attractive places for long-term investments. There’s a history of sound macro-management, better demographics, and a steadily increasing flow of foreign direct investments.

According to Alexander Davey of HSBC Asset management, the growth in China is expected to normalize as its economy reopens and it expands manufacturing. Goldman Sachs Group Inc. pointed out opportunities for Thai bank stocks.

Bloomberg’s survey from 15-19 May found that 65% of respondents were located in Europe or North America. About 19% of respondents said that they were located in Asia. Most respondents were either portfolio managers, retail traders or strategists.

MLIV Pulse, a weekly survey conducted of terminal and online news readers, also includes a 24/7 MLIV blog on the terminal.

The Turkish central bank is expected to keep the rate of its one-week Repo at 8.5% ahead of the nation’s runoff elections

South Africa’s Central Bank is widely expected raise its key interest rate, while Indonesian central bank policy is expected to remain unchanged

The mid-May CPI report in Brazil will probably show inflation as resilient.

The traders will also be watching for a possible vote in the lower house on the new fiscal rules

Commercial banks in China will probably keep their loan prime rates the same after the People’s Bank of China set its own key rate

Singapore and Malaysia to release their inflation reports