London: The strength of a rally across developing nations after the US Federal Reserve’s rate increase has become a riddle for global investors. But the answer may be simple: growth prospects.
While higher US borrowing costs typically boost the dollar, policy makers were less hawkish than investors expected, sending the greenback tumbling and emerging-market assets soaring. That gave investors breathing space to revel in the prospect of faster US growth—because when the world’s largest market takes off, it lifts the fortunes of countries worldwide.
“The global recovery is getting stronger and even Europe is showing some signs of life,” said Hertta Alava, the head of emerging markets at FIM Asset Management Ltd. in Helsinki. “There was a little bit of weakening at the end of February, but investors are back in the game. This environment is good for risk sentiment.”
Developing-nation stocks are on longest winning streak in seven months, and Mexico’s peso and South Africa’s rand led a measure of emerging currencies to the highest level since 2015.
The iShares MSCI Emerging Markets ETF, an exchange-trade fund that tracks developing equities, saw inflows of $197 million on Monday, the second in a week.
Chinese stocks and South Korea’s won starred in the rally since the latest US rate increase. Most investors favour Asian assets for the rest of 2017.
“One of the reasons why we really like Asia and why we are overweight emerging markets is because we believe the fundamentals are now turning,” Belinda Boa, the Hong Kong-based head of active investments for Asia Pacific at BlackRock Inc, told Bloomberg Television. “There are markets that are running hot. What’s really important for us is for our investors to look at the medium to longer term.”
That echoes Christopher Brightman’s view.
The chief investment officer at Research Affiliates LLC said investors have the opportunity to get in early on what should be a multi-year bull market in emerging assets as demand for commodities increases. Bloomberg