Emerging markets will continue to outperform developed markets even as economic growth slows globally and uncertainty in the markets stabilizes, according to financial leaders at Royal Bank of Canada Global Asset Management and BlueBay Asset Management.
“The two most consequential developments in emerging markets are that there are signs of stabilization in the global marketplace and there will be a slowing of the growth rate of the economy,” said Eric Lascelles, chief economist at RBC Global Asset Management.
The risk of a recession in both developed markets and emerging markets is abating, he said.
“Consumers are enjoying good labor market conditions, and uncertainty in the markets is receding,” Lascelles added. “The odds of a recession have gone down since September. The United States and China are making progress, although friction between the two is not done with yet.”
Lascelles and others who spoke at the RBC webinar on emerging market conditions Wednesday agreed the economic stimulus strategies being employed at the present time by China are beginning to show results.
Working against the positive trends in the global markets are the upcoming presidential election in the United States and U.S. tensions with Iran, both of which add uncertainty to the global economy, he said.
Although friction is easing a little between the United States and China, “what we should pray for is new normal with an end to friction with Asian markets,” said Mayur Nallamala, head of Asian equities at RBC Global Asset Management. “Phase two of the tariff agreements between the United States and China is going to be a lot more difficult to negotiate. If a trade war persists, it will have a negative impact on Asian markets overall.”
The outbreak of the Wuhan virus in China could also have a destabilizing influence on the Asian economy, Nallamala said. “Asia as a whole will be affected if there is a health scare, [in part] because it will have an impact on tourism.”
On the positive side for emerging markets, but not for the United States, the dollar already may be peaking, he added.
Attention is also being paid in the emerging market space to sustainable investing that takes into account environmental, social and governance issues, said Laurence Bensafi, deputy head of emerging markets equity at RBC Global Asset Management.
“People think emerging markets do not care about ESG, but that is not true,” Bensafi said. “Good ESG practices pay off in the long run, so investors have to have a long-term view. This is only the beginning of growth in ESG investing.”
Investments that take ESG issues into consideration were estimated at $13.6 billion as recently as 2012 and stood at $30.7 billion as of 2018, Bensafi said.
Investment opportunities exist in emerging markets other than Asia, such as Nigeria, Egypt and Ukraine, explained Polina Kurdyavko, head of emerging markets at BlueBay Asset Management. Volatility in currencies has been decreasing in recent years.
“The ultimate risk for emerging markets is the tepid growth environment that we are in,” Kurdyavko said.