Rally Pause
Stocks and currencies retreated on Monday after talks between major oil producers ended in Doha without any agreement on limiting output. The MSCI Emerging Markets Index of shares snapped a seven-day rally to drop 0.4 percent as of 10:21 a.m. in London. A gauge of currencies fell 0.1 percent. Chinese data last week showed improvements in exports industrial output and retail sales in March, suggesting the world’s second-largest economy is stabilizing.
“While lower oil prices could be a threat, it’s definitely not the same situation we had in January,” said Rajeev De Mello, who oversees about $10 billion as the head of Asian fixed income at Schroder Investment Management Ltd. in Singapore. “We’ve a more positive situation in China. We have the Fed, which is very dovish anyway.”
While Schroder has become cautious after the recent rally, it still has a “constructive” bias toward emerging markets, according to De Mello. Deutsche Asset Management is warming up to equities and dollar-denominated corporate debt of developing nations, and expects oil prices to rally over the next 12 months, Sean Taylor, chief investment officer for Asia Pacificemerging markets, said in a briefing in Singapore.
Accommodative Policies
Bond investors at Goldman Sachs Asset Management concurred that the “accommodative” global monetary policies are “positive” for “selective exposure” to emerging-market debt. China poses a risk as its monetary fiscal stimulus to shore up growth threatens the long-term stability in its financial system, the fixed-income group said in its outlook report for the second quarter. They’re hedging that risk through credit-default swaps and taking a short position in Asian currencies versus the Russian ruble.
“China appears to be prioritizing its growth target rather than reforms,” the team wrote in the research note. “In the near-term, we think this is supportive for financial markets but liquidity-fueled debt growth seems unsustainable and could create bigger risks over the longer term.”