According to Swiss investment bank Credit Suisse, emerging economies would be an attractive investment target for next year due to the emergence of reform-oriented governments, relative political stability and economic resurgence in some of the larger nations.
International developments over the last decade, such as the political uncertainty gripping Europe and U.S. President-elect Donald Trump’s plans to hit the reset button on U.S. trade policies, are not impacting the emerging economies to any significant degree and emerging markets (EM) have evolved to become more resilient to such threats, said Nannette Hechler Fayd’herbe, Credit Suisse’s global head of investment strategy, in a media briefing on its 2017 investment outlook.
“(EMs) have a lower exposure to an export-driven (growth) model than is generally assumed. They have a better, balanced-type of growth model,” said Hechler Fayd’herbe.
A third of their gross domestic product (GDP) is dependent on international trade is present in a large majority of EM countries, Fayd’herbe added.
A large domestic consumer base, many of whom are just entering the middle class, which allows them to look inwards for growth are present, for example, in large EMs in Asia and Latin America.
Still growing at twice the pace of global growth are the world’s two most populous countries, China and India. While China’s most recent factory activity data showed continued expansion in its manufacturing and services sectors, India saw its economy grow by 7.3 percent annually recently in its second quarter of fiscal 2016.
Three notable investment themes for 2017 where emerging markets looked attractive were highlighted by Credit Suisse.
Local and hard currency-denominated debt
The investment bank said there was a need to continue diversifying fixed income investments, particularly in markets where corporate credit still played a big part and added that it was looking for sources of yield in countries where the political and economic risks were reasonable.
“We particularly find emerging market debt in hard currency, but also in local currency, as an important part of investment strategy for next year,” Hechler Fayd’herbe said.
Chinese equities look attractive
Driven by unexpected political outcomes which were not well priced-in and thus resulted in periods of volatility, stock markets have had a volatile year.
Following a series of government reforms to stabilize the bifurcate economy and make China’s financial markets more open to international investors, Chinese markets have somewhat recovered after having started the year with a massive sell-off.
As China gradually turns to its domestic economy and services sector to drive growth, mainland sectors that look attractive include technology, insurance and other high-growth sector.
Playing the oil trade in the FX market
With special emphasis on the Norwegian krone and the Russian ruble, Credit Suisse believes one way to play the oil trade would be to look at energy-related currencies following the soaring of oil prices after OPEC’s Wednesday announcement of production cuts.
According to Heng Koon How, senior foreign exchange investment strategist at the bank, the ruble is also set to be one of the few currencies that could fight against outright dollar strength. Russia’s economic outlook had improved and its economy was set to grow by 1.5 percent in 2017, the World Bank said in early November.
(Adapted from CNBC)
Categories: Economy & Finance