In the News

Emerging Markets Are Down, Not Out, Says BlackRock

By Chiara Albanese

Emerging market assets have been walloped of late, and some analysts and investors reckon they have further to fall. But they do have some friends in high places.

“Emerging markets are far from bulletproof. But they are better equipped than ever to counter the challenges [they will have to face] in the second  half of the year,” said portfolio managers at BlackRock, a $3.8 trillion asset manager, in its mid-year investment update Thursday.

Since the U.S. Federal Reserve first hinted at a possible reduction in its easing program at the end of May, emerging market funds as a whole have lost about $50 billion, said Benjamin Brodsky, global head of fixed income asset allocation and emerging markets at the firm.

“Emerging market investors got a rude awakening in June, with currencies, debt prices and shares tumbling on fears of a funding crisis,” the BlackRock investors said in a report. But old habits die hard and investors are  likely to be back to their favorite destinations for well-priced bets soon, the firm reckons.

“Mexico is a well-loved child and as soon as volatility calms down, investors will jump back in the market. The same is likely to happen for the Philippines and Poland in Eastern Europe,” Mr. Brodsky added.

But investors will be more picky with their choices. Countries with structural funding issues, such as South Africa, Turkey, Indonesia and India are likely to suffer further on the prospect of the end of easy money, and rising real interest rates in the developed world will make their assets less attractive.

Those countries will also be faced with other challenges.

Weak currencies could stoke inflation, and slower inflows pose risks to countries that rely on external funding, for example.

But the acceleration of global investor outflows since the end of May means that valuations in most markets are cheap, BlackRock said. “No better time to buy than when the last emerging market investor turns off the generator. Just remember patience is a friend in bear markets,” the firm said.