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The Emerging Market Rebound Looks Set to Stretch Into 2020

Abandoned constructoion site of the MIS (Museum of Images and Sound of Rio). After a heavy storm the fence broke completely, opening a good view on the deserted building.

Emerging markets are about to embark on another year of wealth creation after adding $11 trillion to investor portfolios in the past decade.

 

Developing-nation assets will outperform their developed peers, with Asia having the best prospects, according to Bloomberg’s survey of 57 global investors, strategists and traders on their outlook for next year. Total wealth in emerging-market stocks and bonds now exceeds $25 trillion, bigger than the economies of the U.S. and Germany combined.

EM or DM?

The U.S.-China trade dispute that dictated market moves throughout 2019 will remain the biggest driving force, while China’s growth outlook eclipsed Federal Reserve monetary policy to be the second-most important factor. After a wave of global easing led to more than $11 trillion in negative-yielding debt, the haven pile will be less of a focus as some central banks enter holding patterns from easier monetary policies.

Biggest Emerging-Market Drivers

All emerging-market assets — currencies, stocks and bonds — are making a comeback this year after posting their largest losses in three years in 2018 as the Fed led global central banks in cutting benchmark rates to support flagging growth. Russia’s ruble, the best-performing emerging currency so far this year, overtook the Brazilian real to become the top pick in 2020, while Indonesia was the most favored for both bonds and stocks.

“I’m still quite bullish on emerging markets heading into 2020,” said Takeshi Yokouchi, a Tokyo-based senior fund manager at Sumitomo Mitsui DS Asset Management Co., which oversees the equivalent of $160 billion in assets. “Underlying supporting factors for EM still remain at very low rates globally, and that will encourage investors to look at higher-yielding assets.”

The combined equity values of 26 nations listed by MSCI Inc. as developing markets increased by $6.6 trillion since the end of 2009, according to data compiled by Bloomberg. Meanwhile, Bloomberg Barclays bond indexes that cover a larger swathe of emerging economies show that local-currency bonds added $2.9 trillion, U.S. dollar bonds added $1.7 trillion and euro-denominated securities added $237 billion during the period.

Below are the results of the Nov. 26-Dec. 5 survey. Click here to read the previous poll, and here is what we predicted for 2019.

2020 Performance Outlook

Asia maintained its top position for currencies and stocks, while Latin America, which was plagued by a rise in political unrest this year, overtook Asia for bonds. Europe, the Middle East and Africa was the least favored for bonds and equities, but moved one notch up for currencies.

Regional Comparison

High-yielding assets dominated the top spots across the regions, underscoring continued demand.

Rankings by Country

Respondents were also asked about the outlook for inflation, monetary policy and economic growth across 12 emerging markets:

Inflation Outlook
Monetary Policy Outlook
Economic Outlook

Here is a list of the survey participants:

AllianceBernstein Holding LP Manulife Investment Management
Allianz Global Investors Mediolanum International Funds
Aberdeen Standard Investments Mitsubishi UFJ Kokusai Asset Management Co.
Amundi Asset Management Mirabaud Asset Management Ltd.
Asset Management One Co. Mizuho Bank Ltd.
Auerbach Grayson & Co. LLC Mizuho Research Institute Ltd.
Bank of Singapore Ltd. Monex Europe Ltd.
BCA Research Inc. Neuberger Berman Group LLC
BNP Paribas Asset Management Nissay Asset Management Corp.
Capitulum Asset Management GmbH Nordea Bank AB
Carmignac Gestion SA Nomura Asset Management Co.
CIMB Group Holdings Bhd. Office Fukaya, Research & Consulting
Cinkciarz Oanda Corp.
Deltec Asset Management LLC Promeritum Investment Management LLP
Deutsche Bank AG Rabobank
Eastspring Investments RVX Asset Management
Falanx Assynt Robeco Institutional Asset Management Inc.
Fidelity International SBI Securities Co.
Fujitomi Co. Schroders Plc
GAM UK Societe Generale SA
Global X Management Co. Sumitomo Mitsui DS Asset Management Co.
GW&K Investment Management LLC Trafalgar Investimentos
Is Investment Securities TS Lombard
ING Groep NV Toronto-Dominion Bank
Kasikornbank Pcl Union Investment Privatfonds GmbH
Krung Thai Bank Pcl Vanguard Asset Management
Lazard Asset Management Wells Fargo & Co.
Legal & General Investment Management
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