The fallout from the US-China trade war and other uncertainties continue to weigh on investor sentiment for emerging markets. But we don’t think that the trade spat or other issues, which we perceive to be short term in nature, should cloud investors’ long-term view of the asset class.
Since the 1997-98 Asian Financial Crisis, investor sentiment on emerging markets has tended to sour during periods of US dollar strength and lower commodity prices.
Arguably the biggest reason for the pullback in emerging market equities is owing to the trade spat between the US and China. However, we think that the market reaction has been excessive.
While it’s certainly hard to predict how things could play out, in light of the recent G20 meeting and talks between US President Donald Trump and his Chinese counterpart Xi Jinping, there seems to be a sense that there could be further negotiations and a more conciliatory tone going forward.
Emerging markets have continued to struggle in the second half of 2018 amid an environment of heightened global equity-market volatility and geopolitical and policy risks.
However, Chetan Sehgal, lead portfolio manager of Templeton Emerging Markets Investment Trust, believes that the pullback presents long-term investors with opportunities amid what he believes is a market overreaction.
1. We expect the second half of 2018 to be stronger
The passing of the summer risk-off period could lead to improved investor sentiment. Other seasonal factors include potential increased consumer spending for events such as Singles Day in China (11 November) and Black Friday in the US (23 November), as well as major global holidays including Thanksgiving, Diwali and Christmas.
Russia has been in the spotlight lately, for reasons good and bad. Hosting the world’s greatest football tournament this summer has brought a positive buzz to a country freshly stung by US sanctions in April. Mixed headlines aside, we believe Russia continues to offer long-term investment opportunities for discerning stock-pickers.
Emerging markets have become leading global market innovators and are embracing technology, says TEMIT lead portfolio manager.
The overall trade balance surplus of China is not that high and that must be viewed in context.