Published on Thursday, the Spanish Bank BBVA research notes that the trend in the decline of investment in emerging markets was evident in the last two years — during this time, investors preferred to invest in more reliable assets. He began in 2014, when the fed began to give the market signals that the program of quantitative easing aimed at lowering long-term interest rates will end soon. This program, as noted in a research note BBVA was one of the main engines of investment flows into emerging markets 2008-2013.
From April 2011 to January, 2016 the index of emerging markets MSCI Emerging Markets has decreased from 1200 to 692 points. From mid-January the index rose to 849 points. In March 2016, according to estimates of the Institute of International Finance, the volume of foreign investments in emerging markets amounted to us $36,8 billion — the most for 21 months.
In the new trend of return of investment in emerging markets BBVA highlights two aspects. First, investment growth is happening in all emerging markets in all regions. Second, and more popular among investors investing in fixed-income assets.
While BBVA believes that returning investor interest in emerging markets is likely a short-term trend, it can still be reversed. The investor sentiment can negatively impact a possible increase in the fed rate and coming in June 2016 referendum on a British exit from the EU.
While the Bank’s analysts single out several converging factors, which have recently attracted the attention of investors toward risky assets, and, consequently, to emerging markets. First, in recent years China, which was in a fever over the past year, “does not present any unpleasant surprises.” Secondly, the oil price rose substantially on expectations of a deal about the freezing of the production level. Finally, the market expects that the fed will be guided by the “ultra-conservative” approach to raising interest rates.
Despite this, BBVA highlights that the Outlook for emerging markets “is much more positive than several months ago.” In April, Bank of America Merrill Lynch also estimated investments in emerging markets as attractive. “Investors should exit the bunker and start playing at increasing in the long term”, — said in a statement the Bank.
BofA noted that increased investment in emerging markets has spurred a growing in relation to other currencies, the dollar, which made currencies of these economies more attractive. Another indicator that speaks in favor of investments in emerging markets, was there a reduction of capital costs. “Usually too much investment causes skepticism. As a rule, most of the investment in such cases is inefficient and the cost of invested capital is too high,” reads the Bank’s statement. However, according to analysts BofA, now in Asia, Eastern Europe, the middle East, Africa and Latin America have opposite processes.
With this assessment agrees the head of the consulting company Bel Air Investment Advisors Daryl of Krasnoff, according to which, investments in shares of companies from emerging markets following the results of 2016 will be more promising than in U.S. assets.
However, experts are not unanimous in their assessments of the prospects of investment in more risky markets. “Emerging markets are likely to nosedive in the next three months,” say analysts at Goldman Sachs.