He added: “The US dollar would rise along with the prospect of rate rises and as we get toward the peak of that, maybe sometime next year emerging markets would start to discount an easing cycle. And at the same time that was happening, emerging economies would come out of their slow down with the exception of China.”
In anticipation of this, Greenberg has maintained his overweight position toward Asia Pacific equities, currently 71.32% of his portfolio.
“Countries with robust internal positions with high levels of foreign exchange reserves, such as China, Taiwan, South Korea, and to some extent, India will be able to withstand the rising US rates the best. Whereas countries with external vulnerability like Turkey, Brazil and possibly Mexico and South Africa will be the ones that are under the cloud.”
And Greenberg added, materials and energy would be the most negatively affected sectors in this scenario. “I don’t think they will be that strongly negatively impacted because they already went through a bear market recently, but they will not benefit from a stronger dollar.”
Despite some potential drawbacks during the emerging markets “digestion process,” this would lead to a better earnings prospect for rates and a healthy emerging markets bull market unlike the current bull run, Greenberg concluded
