Emerging markets positive despite biting US dollar: BlackRock
BlackRock has warned that a stronger dollar and tightening financial conditions may punish some emerging markets in the second half of 2018, but that decent fundamentals meant the assets remain worthwhile.
In its global investment outlook for the second half of the year, the asset manager anticipated that H2 2018 would see rising rates and a stronger dollar contribute to tightening financial conditions.
Belinda Boa, BlackRock’s head of active investments for Asia Pacific & chief investment officer of emerging markets, fundamental active equity, cautioned that the US dollar was starting to bite, which had negatively impacted emerging markets local debt and equity from around April, this year.
“For those dependent on borrowing in dollars or who need external financing, they are being punished by the dollar and also by tightening financial conditions,” Boa said.
She said BlackRock remained positive on emerging markets, however, because of their fundamentals.
The firm flagged greater portfolio resilience as an important consideration for the rest of the year. While Boa emphasised that BlackRock remained risk-on, she said the importance of portfolio resilience had risen.
Boa also warned that geopolitical risk could challenge certain emerging markets, which was a common theme across asset managers’ market outlooks this end of financial year. She pointed to US-China relations and European fragmentation as two potentially strong influencers.
Additionally, the asset manager said a wider range of growth outcomes would be a key theme for the second half of the year, pointing to the material rise of macro uncertainty both to the upside and downside as a cause.
AUTHOR
Hannah Wootton
Recommended for you
Infrastructure assets are well-positioned to hedge against global uncertainty and can enhance the diversification of traditional portfolios with their evergreen characteristics, an investment chief believes.
Volatility in US markets means currency is becoming a critical decision factor in Australian investors’ ETF selection this year.
Clime Investment Management is overhauling the selection process for its APLs, with managing director Michael Baragwanath describing the threat of a product failure affecting clients as “pure nightmare fuel”.
Global X will expand its ETF range of exchange-traded funds next month with a low-cost Australian equity product as it chases ambitions of becoming a top issuer of ETFs in Australia.
