But, the fact that this hatred seems now to be becoming entrenched has meant that a number of the more contrarian-minded investors are beginning once more to give the asset class a once over.
Tom Beckett, Psigma CIO, believes that the increasing antipathy toward the asset class looks remarkably similar to “the hysterical over-reaction to Japanese and European markets in 2012” following which, he points out, major recoveries ensued.
While Beckett is quick to add that he does not expect the fortunes of the asset class to change overnight, especially given the manner in which China has handled the past few days, he also does not agree with the Armageddon-like predictions that some have made for the future of the Asian giant.
“Our view on China remains that the government have a tough job on their hands to rebalance their economy, but so far they have done a decent job and we expect them to continue to do so,” he said.
On the rest of Asia, Beckett is also positive. Despite signs of significant slowdown in the second quarter in Asia, he said: “We believe that people are generally too cautious on Asia and growth (both quality and quantity) will improve as we progress through this year and next.”
The spectre of the Fed
One of the main concerns levelled at emerging markets is the potential damage that could be caused by an increase in US interest rates that many expect will occur either in September or December.
With the memories of the taper tantrum still fresh, it is an understandable concern, but it is worth noting that, where the announcement by then Fed chair, Ben Bernanke, in May 2013 that led to the slump was largely unexpected, the Fed has since then done its best to telegraph its intentions as much as possible.
And, as Beckett points out: while a Fed rate hike could well lead to further EM currency weakness, “it is important to recognise that the economies within the region have developed massively in the past 20 years, debt levels are not ludicrous and equity valuations are cheap.”
