Nov 9, 2020 - Economy

Emerging market assets are back in the spotlight

Illustration of upward trending market arrow wrapped in bubble wrap

Illustration: Sarah Grillo/Axios

The expected gridlock in Washington and more monetary easing across the globe combined with a less antagonistic approach to countries like Mexico and China from President-elect Biden is getting asset managers excited about emerging markets again.

State of play: Fund managers at JPMorgan Asset Management say EM assets are in a “sweet spot” in the months ahead, especially bonds denominated in local currency.

  • “With the dollar depreciating in the coming quarters, EM local is one of our top trades,” Diana Amoa, who specializes in EM debt, told Bloomberg.
  • Limited fiscal spending suggests interest rates will remain lower for longer and an extended period of dollar weakness will boost bond prices and lure more investors as the desperate hunt for yield continues, she added.

Analysts are also bullish on equities.

  • "Emerging market (EM) assets should perform on improved trade sentiment, we believe, especially in Asia ex-Japan," strategists at the BlackRock Investment Institute said in a note to clients.
  • "Many Asian countries have contained the virus and are ahead in the economic restart."

Yes, but: Both JPMorgan and BlackRock strategists agree that the development of the virus and possible vaccine distribution will be deciding factors for the trade.

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