Livewire Expert Insights: Are We at the Turning Point for Emerging Market Equities?

View the original post including transcript on Livewire.

“Don’t Fight The Fed(eral Reserve)” is a time-tested adage in financial markets. 

The short explanation is that investors should make decisions in concert with the decisions of the world’s largest central bank. That is, prepare for a more conservative portfolio when interest rates start to rise and vice versa. While this philosophy is generally geared towards investors who focus on developed market equities, the quandary is even more pronounced for those in emerging markets.

Emerging market assets traditionally have greater yields than those available in developed counterparts for two reasons. One is that their economies tend to grow faster. The other reason is that these assets tend to have higher risk premia.

Then, there is the third and less-talked about reason – which is directly relevant to the adage mentioned earlier. Higher interest rates in the US and a stronger greenback make the debts of emerging market economies harder to service. Couple that with the ongoing effects of the COVID-19 pandemic and high inflation, and there’s a fairly compelling case for why EM is still an avoid for many professional investors.

And the data reflects the caution – the iShares MSCI Emerging Markets ETF is down more than 17% this year alone, while the Vanguard Asia (Ex-Japan) Shares Index ETF is down nearly 14% year-to-date.

This has caused Dr Joseph Lai to ask the inevitable question – are we near the bottom of this months-long underperformance in Asian equities?

In this edition of Expert Insights with Livewire, Dr Lai explains why emerging market equities may finally be near a turning point despite all the macro headwinds still in play. He also discusses the biggest opportunities and risks that are tied to OxCap’s core thesis.

For his complete view, watch the video below.

Produced by Livewire Markets and published on 9 August 2022.