Emerging markets may be getting some of their mojo back after a tough couple of years. So says Goldman Sachs Asset Management (GSAM), citing a rally in emerging market bonds.
Yacov Arnopolin, a portfolio manager for the GSAM emerging markets debt team, is encouraged that the recent interest in emerging markets has been broad-based and has come from both institutional and retail investors. He says: “We have witnessed steady inflows from pension funds, insurance companies and central banks, all looking for yield pick-up and diversification.”
GSAM believes the sentiment towards emerging markets is changing because headwinds such as oil prices and volatility are waning. It sees the start of a transition from a shortage of risk-free assets to a shortage of high-quality risk assets driven by Fed dovishness, negative interest-rate policies in Europe and Japan and more corporate bond purchases from the European Central Bank.
Tell that to investors in Aberdeen Asset Management, the champion of emerging markets which released its interim results yesterday. Adjusted profit before tax fell by 40 per cent to £163m. Shares plummeted by nine per cent to 271.64p.
Hargreaves Lansdown summed up the situation succinctly: “Having prospered from strength in Asia and Emerging Markets when those regions were ablaze, Aberdeen is now suffering as investors shy away from these regions.”
So, where to invest in the new emerging market landscape? GSAM is bullish on the Central American and Caribbean regions because they import oil and rely on American tourism. It is also optimistic about Argentina and Brazil.
However, the asset manager warns that talking about the macro-environment in emerging markets is a bit like discussing the weather in the world: it can be totally different depending on the region or even the city.
It says: “[A turnaround] probably won't look like the searing rallies that thrill seekers have enjoyed over the past 20 years” but that is to be expected as emerging markets “have matured”. And let us not forget that the oil price remains volatile, so nothing is certain.
What of Aberdeen Asset Management? The outlook may also be improving. Aberdeen's investment style, of investing long term, with a focus on high quality stocks chosen with a value bias, has been out of kilter with current market trends.
According to Hargreaves Lansdown, this strategy may be returning to favour but it could be several more quarters before it feeds through to the results.