“That is not to say this will not be some short-term, upside risk to the dollar,” he continued. “But when you think about investing in the asset class and you are a long-term investor, one of the valuation reference points you should consider is – where is FX trading? The fact that FX is trading at a relatively cheap level gives us confidence to say this shouldn’t inhibit investors’ ability to generate a return long-term.”
Barrs added it would behove investors to remember that the FX headwind of the last few years was accompanied by weak growth and disappointing earnings, the likes of which we aren’t currently seeing.
“We are not going to go back to that 6.5% growth premium, he clarified. “China growing at 12% was driving a lot of that, but there is no doubt we can go back to 4% or 4.5%.”
Instead, he argued the asset class is experiencing a cyclical recovery of earnings, which historically, would signal an improvement in returns because of the close correlation between the two.
“We are back to expecting double digit earnings, the first time we have seen this since roughly 2009 to 2010. That alone is a very positive signal that EM can do well in spite of some of these headwinds and could be catalytic in terms of sentiment and fundamentals for the asset class.”
