A stronger dollar, rising US yields and geopolitical tensions have sent plenty of investors bolting from emerging markets. Then there’s Aberdeen Standard Investments and Goldman Sachs Asset Management.
Aberdeen Standard Investments, which oversees about $770 billion, took advantage of the recent selloff to increase its holding in the Russian ruble, South African rand and Indonesian rupiah. Goldman Sachs Group Inc.’s asset-management unit, which manages more than $1 trillion, increased its position in emerging-market debt as it viewed the recent weakness as excessive.
With the exception of Argentina, the pullback has little to do with developing nations’ fundamentals as growth remains solid, according to Ashmore Group Plc.
“We see nothing in the recent unwind of emerging-market positions which in any way changes the benign outlook for EM,” said Jan Dehn, the head of research in London at Ashmore, which manages about $77 billion of developing-nation assets. “This is the time to buy EM, not to sell.”
A Bloomberg currency index that measures carry-trade returns from eight emerging markets, funded by short positions in the dollar, declined in the last four weeks. A gauge of developing-market currencies is near its weakest level this year, while equities extended losses after the Treasury 10-year yield climbed above 3 percent to levels last seen 2011. The Bloomberg Barclays local-currency government debt index has fallen in the last five weeks.
The dollar’s recent strength was fuelled largely by speculative investors covering their short dollar positions — and “not due to a change in investor perception of the macro backdrop,” Goldman Sachs Asset Management said in a note. “Recent relative underperformance in emerging-market debt appears excessive and we don’t think broad-based weakness is warranted given strength in select EM markets.”
Global economies continue to grow, supporting currencies and other assets outside of the US including currencies, according to the asset manager. Emerging-market currencies are also beginning to look un-dervalued based on traditional valua-tion metrics such as interest-rate differentials, it said.
Morgan Stanley Investment Management also agrees. “We believe that the EM fundamentals generally remain strong and this period of underperformance will end and EM assets will once again begin to outperform,” it said in a note received on Wednesday.
Kenneth Monaghan, Durham-based co-director of high yield at Amundi Pioneer Asset Management is taking rising US yield as a reflection of growth, not a risk. He expects the benchmark US Treasury yield to rise to no more than 3.25 percent by the end of the year, unless there’s a significant pickup in either inflation or GDP growth. “People have set levels on Treasuries; it’s kind of like if you go over this cliff the world ends,” Monaghan said in an interview in Singapore. “I don’t buy into that theory. If it’s reflective of greater growth for the economy and greater inflation, the high-yield market would absorb it.”