Emerging markets do well in S&P survey

Recent volatility in emerging markets has not affected fund managers’ enthusiasm for the asset class, according to the latest Standard and Poor’s (S&P) survey.

The S&P Emerging Markets Sentiment Survey of 150 leading global fund managers found 73 per cent expect their assets under management in emerging market securities to increase by the end of 2007, while only 4 per cent expect a decrease.

However, when it came to specific regions, the jury was divided on which emerging market offered the most attractive opportunities, with 56 per cent citing Latin America, 53 per cent opting for Asia and 29 per cent choosing emerging European markets.

Emerging market debt is still viewed as attractive by most fund managers, with local currency debt growing in popularity relative to traditional dollar and Euro denominated bonds.

More than 20 per cent of fund managers said at least half their emerging market debt portfolios now comprised local currency securities.

The survey also highlighted the growing use of credit derivatives, with about 50 per cent of fund managers participating in the credit default swaps market as either a buyer or seller of protection; however, the same amount were also concerned about the possible impact of increased credit and equity derivatives use during times of emerging market volatility.

This concern, combined with the direction of the US economy, rising global interest rates and global inflationary pressures were deemed to be the biggest risks facing emerging markets.

However, with liquidity continuing to flow towards emerging markets, these risks appear to be outweighed by the opportunities on offer.