‘Decade of emerging markets’ to regain traction’

Emerging-market bulls are still upbeat on the asset class, even after China’s highly-touted reopening rally fizzled and proved Wall Street’s early 2023 optimism to be misplaced.

Developing-nation assets stand to finally take off in the second half, they say, as long as global interest rates peak, Chinese authorities prop up growth and structural reforms in India bolster sentiment. A revival may still make this the decade of emerging markets that Morgan Stanley Investment Management flagged earlier this year.

“India, Brazil, China, they don’t have an inflation problem any longer, so they may cut rates faster than the Federal Reserve,” said Xavier Baraton, global chief investment officer at HSBC Asset Management in Paris, on Bloomberg Television. “If you’re looking for true diversification at this time, you’ve got to look into true EM. You’ve got to look into Asia. You’ve got to look into India, which is under-appreciated.”

While the first half of 2023 hasn’t been a disaster for EM investors, it has fallen far short of buoyant forecasts.

MSCI Inc.’s emerging-market stock index has risen about 5 percent this year, well behind the near 11 percent gain in a gauge of developed-nation peers. An index of EM currencies, meantime, has edged up close to 2 percent. Emerging local-currency bonds have only narrowly outperformed a global debt gauge.

It’s nice to see that there’s more to investment life than simply buying ludicrously-valued tech stocks, and that one can derive comparable if not superior returns from alternative strategies with a less odious value proposition. If global inflation and monetary tightening has had one positive impact from an investment perspective, it’s been the revival of the good old-fashioned EMFX carry trade. — Bloomberg.