Are emerging market equities still attractive post sell-off?

Karim Chedid, investment manager at BlackRock, talks to IGTV’s Victoria Scholar about the prospects for emerging market equities following the recent correction in global equity markets.

The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results

Investors removed $4 billion from emerging markets in a short space of time, between the end of January and 6 February 2018, amid a spike of nervousness in global markets, according to the Institute of International Finance (IIF). Some $3.4 billion of the withdrawals came out of equities as the sell-off, which started in the US and spread to emerging markets and beyond, rattled markets around the world.

The MSCI Emerging Market Index shed nearly 8% in less than a fortnight from the peak towards the end of January. The move is in stark contrast to the impressive annual performance in 2017, where the same index gained 34% in US dollar terms, outpacing the S&P 500, which closed the year up 19%.

At the start of 2018, one of BlackRock’s top conviction calls for the year ahead was to go long on emerging market equities. The question now is whether the sell-off changes the fundamental case or is the fund advising clients to use this price action as an opportunity to buy the dips?

In this interview, Karim Chedid, investment manager at BlackRock, argues that the recent volatility in global markets does not change his investment outlook. However, he highlights a number of potential headwinds for emerging markets. These include an appreciating dollar and a busy political calendar in Latin America, as well as the risks around US President Donald Trump’s protectionist stance, where trade tensions with China might intensify.

Chedid remains constructive towards emerging market equities for three key reasons: strong global growth, fund flows and valuations. Firstly, he believes that emerging markets are a growth asset class and the beta of its growth, when compared with developed market growth, will pick up in a period of economic expansion. In his view, this more than compensates for a slower Chinese growth picture. Secondly, he says emerging market fund flows remain strong, with a weaker US dollar providing support. Lastly, Chedid says emerging market stocks are trading at a discount to their developed market equivalents, so they are still cheap.  

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