Emerging markets still hold promise
October 4, 2011, 2:37 PM
The prospects for emerging markets are looking good, analysts say.
Global markets may have entered a state of panic, with investors paying little regard to fundamentals, according to Jerome Booth, head of research for Ashmore, but valuations of emerging market assets are “sharply at odds with underlying risks,” and there’s considerable value across the emerging market complex.
“EM assets have sold off due to significant growth and fiscal challenges in [Group of 10] economies,” he said in a recent research note. “While these difficulties will take years to play out, we believe the end-game is now in sight for the most serious tail risks in G-10. The current global sell-off is likely to be over in the coming weeks.”
And the outlook for EMs remains positive, with their economies increasingly insulated from G-10 developments because of “solid domestic demand, strong reserve cushions, and domestic financing sources,” Booth said, adding that EMs will continue to grow 3 times as fast as G-10, while carrying less than one-third of the public debt levels of the G-10 economies.
The iShares MSCI Emerging Market Index Fund EEM has already lost more than 28% year to date.
“The emerging markets represent long-term value, and have been mispriced as capital flees to the dollar,” said Matt Lasov, director of global research at Frontier Strategy Group.
And with that comes opportunity.
Multinational corporations are holding record levels of cash and should use this “as an indicator to begin serious conversations for acquisition targets,” said Lasov. “As there are limited high-quality targets in emerging markets, first movers will gain an advantage over competitors in terms of the quality of the assets as well as the valuation.”