However, while we are in the sweet spot, we do see selected opportunities among EM assets that investors may want to consider, including in EM local-currency debt and certain equity markets. Read my full weekly commentary for more details on these opportunities.
Market Realist – Bargain hunting in emerging markets
Emerging markets (EEM) offer plenty of opportunities for astute investors. They’re expected to outperform in the next few quarters despite the many challenges we looked at in the previous section. Recovering oil prices, improving economic fundamentals, and a weak dollar are some of the factors likely to support the growth of emerging markets.
Outflows to lessen
The dollar has a huge impact on emerging markets (IEMG) since sharp fluctuations in currencies might affect fund flows. However, with currencies remaining stable now, capital outflow numbers are stabilizing. That’s a sign that investors aren’t too worried about the state of the Market. According to estimates of the International Institute of Finance, net outflows in China (FXI) (MCHI) are expected to slow to $538 billion in 2016 compared to $674 billion in 2015. Lower outflows could support strong markets.
Another factor supporting emerging equities is a cautious stance assumed by the Fed. Since there was no interest rate hike in the second quarter, emerging markets aren’t under as much pressure. And with many Chinese economic indicators on the verge of stabilization, some investors aren’t worried.
Another asset class that may provide better returns is local currency-denominated emerging market government bonds (LEMB). They’ve posted positive gains since February.