Despite the largest quarterly decline on record for emerging markets debt and weakness in emerging markets equities and currencies, Lazard Asset Management has signalled to investors that they still present an appealing investment option in the medium term.
Currency, interest rate, and policy turbulence saw weakening in the last quarter, but Lazard believed that these drivers of macro decline would be short-lived.
“Despite the possibility of further consolidation in the near term, we believe emerging markets equity and debt valuations currently provide an attractive entry point and a good cushion against any further volatility, with emerging markets fundamentals intact in the medium term,” an outlook paper from Lazard said.
The asset manager said that equity fundamentals in the sector had shown stable-to-higher earnings growth estimates for 2018 and 2019, and new areas of return had formed as well as newer industries.
It also believed that the valuation opportunity across emerging markets debt had “improved significantly”.
The key question for investors then, Lazard said, was whether the sell-off across emerging markets assets was in line with the deterioration in fundamentals. Rather, it suggested that some areas were oversold, even at lower valuation targets.