As Alastair McCaig, Market Analyst at IG pointed out: “Today has seen the two ends of the spectrum when it comes to investor appetite for rights issues.”
Indeed, as markets look expectantly toward next week’s FOMC meeting and the very likely prospect of a rate hike in the US, emerging markets are under increasing scrutiny, and it could be argued that the investor reaction to the two sets of capital raising requests can be viewed as a microcosm of where sentiment toward emerging markets currently sits.
While there remain concerns about the prospects for emerging markets, it is no longer all doom and gloom. Where before the focus has very much been on the impact of a Fed rate hike, the concerns around Chinese growth and, increasingly, plunging commodity prices have taken some of the sting out of its expected impact.
As Societe General points out in a new note on the prospects for the sector that the debate in emerging markets has moved on.
“After a disappointing 2015, some (but certainly not all) local currency and bond markets are cheaper than they were a year ago; many hard currency sovereign and corporate bonds are too. Yet EM assets may still not be cheap enough. Weaker Chinese growth, further falls in commodity prices, corporate defaults, and the impending Fed tightening cycle are possible threats; these risks are well understood, but if they worsen next year then EM assets could continue to sucked deeper into the vortex of negative returns. We expect further EM weakness in H1, but though this weakness may extend into H2, it will eventually create some interesting buying opportunities.”
Where there seems the prospect of growth and returns, investors seem increasingly ready to follow. Sadly for Lonmin, and the rest of the mining complex, however, that does not yet look anywhere close to being the case.
