What can investors expect from global stock markets - and fixed income and alternative investments - over the next 12 months? Read our special report to find out.
Tanguy De Lauzon, Morningstar Investment Management
Emerging market equities have encountered a challenging period with trade threats boding poorly for sentiment toward key exporting nations like China, South Korea and Taiwan, whose companies combined make up almost 60% of the asset class. This has reinforced the valuation opportunity, in our view, with expected returns improving to levels not seen since 2016, as investors become overly pessimistic on the outlook for emerging market companies.
With this, emerging market equities continue to be among our preferred equity regions, alongside UK and Japanese equities. That said, opportunities across the emerging market complex remain quite divergent, with South Korean equities standing out.
Our positive view of Russian equities underpins our conviction toward emerging Europe, with attractive valuations providing acceptable compensation for the risk of involvement from the state and the impact of global sanctions.
Will Lam and Ian Hargreaves, Invesco
2018 has been a challenging year for both Asian and global emerging equity markets. The year began with upbeat earnings expectations and valuations above long-term historical averages. However, since the start of the year, valuations have contracted due to a number of factors.
Firstly, we have seen a marked increase in the risk premium for emerging markets given increased uncertainty surrounding trade tensions and geopolitics.
Secondly, this has led to greater concern about China where growth has already been slowing due to the government’s deleveraging campaign. Lastly, the tightening of US monetary policy has led to a deteriorating US dollar liquidity environment with negative implications for emerging market equities and currencies.
This backdrop is likely to continue into 2019, but emerging economies are better placed to withstand these pressures than before, in our view. Valuations are also beginning to reflect the risks being faced, and are currently nearer the bottom end of their historical range.
Sheridan Admans, The Share Centre
The outlook for emerging market assets is looking challenging. Dollar strength will only act as a headwind to capital flows to emerging markets that are reliant on foreign investment. It can also make the servicing of dollar-denominated debt more challenging. Over the long-term we are of the view emerging markets will likely outperform developed markets and valuations are more attractive now.
Having avoided investing in China for a while, valuations are now looking more attractive which is causing us to spend more time looking at possible opportunities in the region. Even though this is the case we remain unlikely to rush to build a position in the region in 2019. The trade dispute with the US looks more tenuous, despite there being a 90 day breathing space before additional tariffs are deployed.
Even though it may have been an unintended consequence, the US seeking the extradition of the Huawei CFO in Canada, adds another dimension to the dispute. Growth in the region has continued to show signs of slowing and stimulus measures are having only a marginal impact.
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