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.
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